Oil prices drop despite Middle East tensions

New York: Oil prices extended losses on Tuesday as the crude supply glut overshadowed a diplomatic row between key producers Saudi Arabia and Iran.

US benchmark West Texas Intermediate for February delivery shed 79 cents at $35.97 a barrel on the New York Mercantile Exchange.
In London, Brent North Sea crude for delivery in February lost 80 cents at $36.42 a barrel.

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.

But analysts said 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.

US petroleum inventories stand near record levels and the market is looking for another increase in Wednesday`s weekly report from the Department of Energy. "The market is generally looking for a build of around one million barrels," said Bob Yawger, analyst at Mizuho Securities.

"That`s probably the main reason that the market has discounted all this background noise going on between Saudi Arabia and Iran."