* Markets jolted by deepening Saudi-Iran crisis
* Oil production near record-highs to feed global oversupply
(Updates prices)
By Amanda Cooper
LONDON, Jan 4 (Reuters) - Oil prices rose 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.
Saudi Arabia, the world's biggest oil exporter, cut
diplomatic ties with Iran on Sunday in response to the storming
of its embassy in Tehran following Riyadh's execution of a
prominent Shi'ite cleric on Saturday.
Fellow Gulf producer Bahrain said on Monday it too would cut
ties with Iran.
Benchmark Brent crude futures LCOc1 were last up 72 cents
on the day at $38.00 a barrel at 1323 GMT, off a session high at
$38.50.
U.S. West Texas Intermediate (WTI) futures CLc1 were up 29
cents to $37.33 a barrel.
"The two questions the market is grappling with are - where
next in the Saudi Arabia/Iran stand-off? I think President
(Hassan) Rouhani on the Iranian side would like to calm things
down and push for no further escalation," Energy Aspects analyst
Richard Mallinson said.
"The second question for the market is is there any
uncertainty over the exact timing and volume of the return of
Iranian barrels?" he 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.
A series of Iranian officials vowed on Friday to expand
Tehran's missile capabilities, a challenge to the United States
which has threatened to impose new sanctions even as the vast
bulk of its measures against Iran are due to be lifted.
"It's very confrontational. I don't think that's enough to
derail (the broader lifting of sanctions), but it is prompting a
few more questions about what would the timing of the return of
Iranian barrels look like," Energy Aspects' Mallinson said.
"The statements at the weekend by (Iranian oil officials)
that Iran would only increase production at the level of the
market can absorb seems to be a shift in rhetoric."
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.
Iran's oil exports have fallen to around 1 million bpd, down
from a peak pre-sanctions peak of almost 3 million bpd in 2011.
The oil price surrendered earlier gains that boosted futures
by as much as 2 percent after data showed Chinese factory
activity shrank for a 10th straight month, prompting a 7-percent
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.
"Iran may decide to take more of a hardline stance against
the Saudi-oriented policy of not cutting production. So far,
they've been going along with it, but this renewed political
vigour may prompt them to change a bit," CMC Markets analyst
Jasper Lawler said.
"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."
Oil prices are still down by two-thirds since mid-2014 on
oversupply as producers including the Organization of the
Petroleum Exporting Countries (OPEC), Russia and the United
States pump between 0.5 million and 2 million barrels of oil
every day in excess of demand.
* Oil production near record-highs to feed global oversupply
(Updates prices)
By Amanda Cooper
LONDON, Jan 4 (Reuters) - Oil prices rose 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.
Saudi Arabia, the world's biggest oil exporter, cut
diplomatic ties with Iran on Sunday in response to the storming
of its embassy in Tehran following Riyadh's execution of a
prominent Shi'ite cleric on Saturday.
Fellow Gulf producer Bahrain said on Monday it too would cut
ties with Iran.
Benchmark Brent crude futures LCOc1 were last up 72 cents
on the day at $38.00 a barrel at 1323 GMT, off a session high at
$38.50.
U.S. West Texas Intermediate (WTI) futures CLc1 were up 29
cents to $37.33 a barrel.
"The two questions the market is grappling with are - where
next in the Saudi Arabia/Iran stand-off? I think President
(Hassan) Rouhani on the Iranian side would like to calm things
down and push for no further escalation," Energy Aspects analyst
Richard Mallinson said.
"The second question for the market is is there any
uncertainty over the exact timing and volume of the return of
Iranian barrels?" he 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.
A series of Iranian officials vowed on Friday to expand
Tehran's missile capabilities, a challenge to the United States
which has threatened to impose new sanctions even as the vast
bulk of its measures against Iran are due to be lifted.
"It's very confrontational. I don't think that's enough to
derail (the broader lifting of sanctions), but it is prompting a
few more questions about what would the timing of the return of
Iranian barrels look like," Energy Aspects' Mallinson said.
"The statements at the weekend by (Iranian oil officials)
that Iran would only increase production at the level of the
market can absorb seems to be a shift in rhetoric."
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.
Iran's oil exports have fallen to around 1 million bpd, down
from a peak pre-sanctions peak of almost 3 million bpd in 2011.
The oil price surrendered earlier gains that boosted futures
by as much as 2 percent after data showed Chinese factory
activity shrank for a 10th straight month, prompting a 7-percent
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.
"Iran may decide to take more of a hardline stance against
the Saudi-oriented policy of not cutting production. So far,
they've been going along with it, but this renewed political
vigour may prompt them to change a bit," CMC Markets analyst
Jasper Lawler said.
"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."
Oil prices are still down by two-thirds since mid-2014 on
oversupply as producers including the Organization of the
Petroleum Exporting Countries (OPEC), Russia and the United
States pump between 0.5 million and 2 million barrels of oil
every day in excess of demand.