Oil prices jumped on Monday as the diplomatic rift between Saudi Arabia and Iran stoked fears of a supply disruption, while the weakening US dollar boosts demand for the commodity as well. Both crude benchmarks headed steeply higher on the first trading day of 2016, lifted by a worsening of diplomatic ties between Saudi Arabia and Iran, with traders cheering also a fall of the US dollar.

Futures for WTI jumped 2.13% to trade at $37.83 per barrel, while Brent futures gained 2.47% to $38.20 per barrel.

Early on Sunday, Iranian protesters stormed Saudi Arabia's embassy in Tehran while protesting the execution of the Shia Muslim cleric Sheikh Nimr al-Nimr, convicted of terror-related offenses.

Saudi Foreign Minister Adel al-Jubeir stated that all Iranian diplomats must leave the country within 48 hours.

The countries are OPEC's two most powerful members and the recent diplomatic rift could worsen prospects for any cartel agreement to regulate production.

Fresh weekly stockpiles data will be released by the US government on Wednesday, while the American Petroleum Institute will unveil its weekly figures on Tuesday.

Meanwhile, oil was elevated also due to a weakening US dollar index that makes dollar-denominated commodities cheaper in other currencies.