Investing.com - Oil prices trimmed gains on Monday, the first trading day of the new year, after rising more than 3% earlier, with investors noting heightened geopolitical tension between Saudi Arabia and Iran.
Saudi Arabia said on Sunday it severed diplomatic ties with Iran. The move followed a weekend storming of the Saudi embassy in Tehran in response to the kingdom's execution of a prominent Shiite cleric.
Crude oil for delivery in February on the New York Mercantile Exchange inched up 30 cents, or 0.8%, to trade at $37.34 a barrel during European morning hours. It earlier rose by as much as 3.3% to a session peak of $38.32. Prices fell to $34.29 on December 21, the lowest since February 2009.
Elsewhere, on the ICE Futures Exchange in London, Brent oil for February delivery dipped 8 cents, or 0.21%, to trade at $37.53 a barrel. London-traded Brent futures were up 3.2% earlier in the day. Brent Prices slumped to $35.98 on December 22, a level not seen since July 2004.
Meanwhile, Brent's premium to the West Texas Intermediate crude contract stood at 19 cents, compared to a gap of 24 cents by close of trade on Thursday.
Global crude production is outpacing demand following a boom in U.S. shale oil and after a decision by the Organization of the Petroleum Exporting Countries last year not to cut production in order to defend market share.
Oversupply issue will be exacerbated further once Iran returns to the global oil market early next year after western-imposed sanctions are lifted. Analysts say the country could quickly ramp up production by around 500,000 barrels, adding to the glut of oil that has sent prices tumbling.