Oil Price is Slightly Rising Amidst Tension Between Saudi and Iran

Oil price slightly rise in trading on Monday. The price jumped as tension between two large oil producers in Middle East: Saudi Arabia and Iran escalating.

According to Reuters, Saudi Arabia cut diplomatic ties with Iran on Sunday in response to the storming of its embassy in Tehran. The diplomatic ties between the two major oil producers have deteriorated Saudi government executed prominent Shiite cleric, Nemer al-Nemer on Saturday.

Protesters ransacked the Saudi embassy in Tehran on Saturday and throwing molotov cocktail, setting some part of the building on fire. A mass of protest have also come to Saudi consulate in Mashdad, second largest city in Iran.

As a respond to the tension between two oil producing countries, oil price traded on global oil benchmark Brent LCOc1 climbed over $1.2 to a high of $38.50 per barrel on Monday, before easing back to $37.48. While U.S. crude's West Texas Intermediate (WTI) futures CLc1 were up 29 cents at $37.33.

Philip Futures brokerage said, "With increased geopolitical tensions between Saudi Arabia and Iran, the market has put a premium on prices just when markets opened."

However, the price gain in the early trading are pared back in the afternoon trading, according to Wall Street Journal. The tension between two oil producing countries increase the unpredictability of oil prices, because Iran has said that it planned to increase its exports by at least 500,000 barrels a day once sanctions were lifted.

After reaching a deal on its nuclear program, Iran expected to have sanctions on its export on oil to be removed. The negotiation of Joint Comprehensive Plan of Action was reached on July 14, 2015. Nevertheless, the clash with Saudi Arabia will create more pressure on oil price, as both countries are leading oil producers in the world.

Energy analyst from China-based SCI International, Gao Jian said, "Any clash between two key oil producers and possible supply chain disruption will always create some psychological reaction on prices," he said in Guangzhou. Furthermore, "But a bigger reason why prices rose higher today is the rising uncertainty over how this conflict might affect the expected lift of sanctions on Iran. Any possibility of a delay or a cancellation of the ban lift will be positive to oil prices."

BBC reported that Bernard Aw market strategist at IG Markets in Singapore told AFP news agency that, "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."

Oversupply of the oil production have hit the oil price since 2014, slumping the price from $105 to below $40 a barrel. The tension between Saudi and Iran, the two top oil producers will add uncertainties to the oil price in the market.