Oil falls more than $1 as Middle East supply fears ease

Oil prices fell more than $1 a barrel on Friday as worries receded over the threat of disruptions to Middle East supplies due to Saudi Arabia-led air strikes in Yemen, Reuters reported.

Goldman Sachs said the bombing of Yemen would have little effect on oil supplies as the country was only a small crude exporter and tankers could avoid passing its waters to reach their ports of destination.

North Sea Brent crude LCOc1 was down $1.05 at $58.14 a barrel by 0920 GMT after hitting an intraday low of $57.76. U.S. crude CLc1 was down $1.05 at $50.38 a barrel.

Oil jumped around 5 percent on Thursday, its biggest daily gain in a month, after air strikes in Yemen by Saudi Arabia and its Gulf Arab allies sparked fears that escalation of the Middle East battle could disrupt world crude supplies.

The Saudi-led coalition launched more air strikes on Friday against targets in the Yemeni capital of Sanaa, controlled by Shi'a Houthi fighters allied to Iran.

Worries over the possible impact of the geopolitical tensions on the Bab el-Mandeb Strait, the closure of which could affect 3.8 million barrels per day (bpd) of crude and product flows, put oil prices on track for weekly gains.

Brent was headed for almost a 5 percent weekly rise - the biggest gain since early February. U.S crude was set for a 10 percent jump - the most since the start of 2011.

If the fighting in Yemen were to become a regional conflict, then oil prices could climb, said Jonathan Barratt, chief investment officer at Ayers Alliance, but he added that a blockade of Bab el-Mandeb seemed unlikely:

"Now the market is questioning how sustainable the (impact of the) geopolitical event is on oil prices," Barratt said.

Yemen itself is a very small oil producer, with an output of around 145,000 bpd in 2014.

A bigger impact from the Middle East on oil prices might come from a potential nuclear deal with Iran, which could result in a loosening of Western sanctions against Tehran and rising exports of its oil reserves.

"With potentially 30 million barrels stored offshore, it could quickly flood an already saturated oil market," ANZ oil analysts said in a note to clients.

Goldman Sachs and ANZ said a nuclear deal with Iran would be unlikely to lead to higher Iranian oil exports before the second half of the year.