Tensions between the two major oil producers over Saudi Arabia’s execution of a prominent Shiite cleric have erupted into a full-blown diplomatic crisis after Riyadh and its Sunni Arab allies cut or reduced ties with Iran, sparking global concern.
US Secretary of State John Kerry called his counterparts in each country in a bid to ease the tensions and the United Nations moved to shelter peace efforts in Syria and Yemen from the diplomatic storm.
Saudi Arabia is the biggest producer in the Organization of the Petroleum Exporting Countries, while Iran is also a key member, and there are concerns that their diplomatic spat could lead to a disruption in oil supplies.
At around 0300 GMT, US benchmark West Texas Intermediate for delivery in February was up 25 cents at $37.01 and Brent crude was trading 24 cents higher at $37.46.
Analysts said however that the impact of geopolitical risks in the Middle East on the oil market is being cushioned by the oversupply and higher output from oil producers in other parts of the world.
“Oil prices have risen, but not materially,” research house Capital Economics said.
“Indeed, ample global stocks of crude and higher production elsewhere mean that geopolitical risks from the Middle East are not as great as they once were,” it said in a market commentary.
Concerns over economic weakness in China are also helping to keep prices lower as it would dampen demand in the world’s second biggest economy and top energy consumer, other analysts said.