An Iraqi worker opens a pipe at Sheaiba oil refinery in Basra in this file photo.


World oil prices dived on Friday close to a seven-year low, propelled downward by global oversupply and the strong dollar after this week's US interest rate hike.

In late morning London deals, US benchmark West Texas Intermediate for delivery in January tumbled to $34.41 a barrel - the lowest since February 18, 2009.

The contract later stood in midday trade at $34.48, down 47 cents from Thursday's closing level.

Crude futures have been further plagued by oversupply woes ever since the Opec oil cartel left its output ceiling unchanged on December 4, despite a market collapse that has ravaged its members' revenues.

"This justified fear of an oil glut is continually causing new lows," said analyst Connor Campbell at trading firm Spreadex.

Also on Friday, Brent North Sea crude for February delivery was 22 cents lower at $36.84.

The January Brent contract had plunged on Monday to $36.33 per barrel, last witnessed on December 24, 2008. The contract then expired on Wednesday.

This week, Brent has traded dangerously close to its lowest point in almost 11 years.

The market has been pummelled as producers including Opec continue pumping despite depressed prices and anaemic global demand - as cartel members look to maintain market share by pushing aside non-Opec members.

"Oil appears likely to remain quite volatile into the end of the year," said Oanda trading group analyst Craig Erlam.

"A break of $36.20 would see Brent trading at its lowest levels since July 2004 and could prompt a move back towards $33-34."

Adding to the commodity's woes is the US Federal Reserve's decision on Wednesday to raise benchmark interest rates for the first time in nine years, boosting the dollar and thus making crude more expensive for buyers with weaker currencies.

The dollar soared on Wednesday after the US central bank lifted its benchmark federal funds rate, locked near zero since the 2008 financial crisis, by a quarter point to 0.25-0.50%, saying the US economy is growing solidly.

"WTI sinking further below $35 ... is likely the result of the strengthening dollar," said Daniel Ang, investment analyst at Phillip Futures in Singapore.

"In addition to this, Brent's January 2016 contract has expired, which is causing spread traders to close off their WTI January 2016 contract positions."

Gene McGillian, broker and analyst at Tradition Energy, said oil prices will probably test 2008 lows, which would bring WTI to the vicinity of $32 a barrel.

"Until we see signs that production is basically beginning to come down somewhere in the world... that the economic activity is going to pick up and boost fuel demand, the market is going to remain at these low levels and grind towards those areas we bottomed at during the Great Recession," McGillian said.