Oil prices fell further today as the crude supply glut overshadowed a diplomatic row between key producers Saudi Arabia and Iran.

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.

At about 0600 IST, US benchmark West Texas Intermediate for delivery in February was down seven cents at USD 36.69 a barrel.

Brent North Sea crude for February lost 33 cents to USD 36.89 compared with yesterday's close.

Prices "reversed gains... despite the growing tensions between Saudi Arabia and Iran", noted FXTM analyst Lukman Otunuga.

He added that "investors' attraction has been haunted by the intensifying concerns around the unrelenting oversupply, while growing anxieties about the pace of global growth have triggered fears that demand may be about to dip".

Saudi Arabia is the biggest producer in the Organisation of the Petroleum Exporting Countries, while Iran is also a key member, and there are concerns that their diplomatic spat could lead to a disruption in oil supplies.

However concerns over economic weakness in China are helping to keep prices lower as it would dampen demand in the world's second biggest economy and top energy consumer.