Oil Rises Over Saudi-Iran Tension

Oil Rises Over Saudi-Iran TensionOil Rises Over Saudi-Iran Tension

Oil prices edged up on Monday after a breakdown in diplomatic ties between Saudi Arabia and Iran that some speculated could result in supply restrictions, although gains were tempered by data showing some of Asia's largest economies are struggling.   

Benchmark Brent crude futures were last up 76 cents on the day at $38.04 a barrel, near an intraday high of $38.50. US West Texas Intermediate futures were up 48 cents at $37.52, Reuters reported.

"The two questions the market is grappling with are - where next in the Saudi Arabia-Iran standoff? … Is there any uncertainty over the exact timing and volume of the return of Iranian barrels?" Energy Aspects analyst Richard Mallinson said.

The clash between the two Middle Eastern countries comes as Iran, which holds some of the largest proven reserves, hopes to ramp up oil exports following the expected removal of sanctions against it.

Iran plans to raise output by half a million to 1 million barrels per day (bpd) post lifting of sanctions, although Iranian officials said they did not plan to flood the market with its crude if there was no demand for it.

The oil price surrendered earlier gains that boosted futures by as much as 2% after data showed Chinese factory activity shrank for a 10th straight month, prompting a 7% fall on Chinese stock markets and for trading to be suspended.

Manufacturing activity in India, which the International Energy Agency believes will lead growth in oil demand this year, contracted for the first time in two years.

"Really, this is still a bear market and people are just selling the bounce because (the clash) is not going to affect production. Obviously it's just tensions in the region," CMC Markets analyst Jasper Lawler said.

Oil prices are still down by two-thirds since mid-2014 on oversupply, as producers such as the Organization of Petroleum Exporting Countries, Russia and the United States pump between 0.5 million and 2 million barrels of oil every day in excess of demand.