Brent has slumped to its lowest in more than five years, as top exporter Saudi Arabia and other large Gulf producers have declined to cut production in the face of fast-growing US shale oil output, despite pleas from other members in the Organization of the Petroleum Exporting Countries (OPEC).
"With no production cuts in the offing and a significant demand response years away, oversupply looks to be with us for a while," said RBN Energy analyst Rusty Braziel in a note. "$100 a barrel crude oil prices are in the rear view mirror, at least for a couple of years."
Brent crude for February delivery was down $1.66 at $55.67 a barrel by 1237 GMT, almost 5 per cent below the day's high at $58.54, set within 30 minutes of the open of trading.
Prices touched a post-2009 low of $55.48, having averaged around $110 a barrel between 2011 and 2013.
Traders said a number of buy orders would have been placed ahead of the start of the New Year's trading, with some willing to bet prices will bounce this year as expensive oil projects are potentially shuttered or canceled.
Markets were shut on Thursday for the New Year holiday. But gains on the first trading day of 2015 were short-lived.
Front-month US crude for February delivery was down $1.05 a barrel at $52.22, after reaching an intraday high of $55.11 shortly after the start of trading.
Prices faced additional pressure on Friday on signs that output from some of the world's largest oil producers continues to rise.
Iraq, OPEC's second-largest producer, said December exports hit their highest level since 1980, averaging 2.94 million barrels per day, while output in Russia, the largest exporter outside OPEC, hit a post-Soviet record high in 2014.
In Libya, a senior oil official said a major fire in an oil storage tank at the North African country's largest crude export port had been extinguished.
The jump in oil prices early on Friday was also capped by surveys showing weak factory activity in China and Europe in December, underlining weaker growth that has slowed the rise in oil demand and weighed on prices.
In the United States benchmark oil prices took some support from data on Wednesday showing inventories fell by 1.8 million barrels in the last week, but an increase of 2 million barrels at the US crude contract's delivery hub of Cushing, Oklahoma kept prices under pressure.
Copyright: Thomson Reuters 2015