Oil prices rise after Saudi Arabia cuts ties with Iran

Oil prices rose Monday on Middle East supply risks after Saudi Arabia cut diplomatic ties with Iran.

At about 1230 GMT, US benchmark West Texas Intermediate for delivery in February climbed 30 cents to $37.34 a barrel.

Brent North Sea crude for February won 59 cents to stand at $37.87 a barrel compared with Thursday's close.

Mike van Dulken, head of research at Accendo Markets, noted that "geopolitical tensions in the Middle East are adding to existing volatility in the price of oil".

Tensions between major crude producer Iran and its Sunni Arab neighbours reached new heights Monday as the world's biggest pumper of oil Saudi Arabia and Gulf allies cut or downgraded diplomatic ties with Tehran in a row over the execution of a Shiite cleric.

Angry exchanges following Saudi Arabia's execution Saturday of prominent Shiite cleric and activist Sheikh Nimr al-Nimr erupted into a full-blown diplomatic crisis as Riyadh and then ally Bahrain severed their relations with Tehran.

"Oil started the new year on the mend, as... markets reacted to fears that geopolitical tensions in the Middle East may threaten the supply of oil," said Bernard Aw, market strategist at IG Markets in Singapore.

Despite the rise, Aw said the persistent global crude oversupply would continue to weigh on prices over the longer term.

"Unless we see a convincing drop in oil output from these two nations, and the broader oil-producing community, the supply glut issue will persist, which means oil prices would remain under pressure for a longer period," he told AFP.

The Organization of the Petroleum Exporting Countries, whose 13 members include Saudi and Iran, decided last month against cutting output levels despite a plunge in oil prices -- in a bid to maintain market share faced with competition from North American shale oil output.