Oil moved up on first global trading day of the year as Saudi Arabia severed its diplomatic ties with Iran over weekend.

Saudi Arabia, executed 47 people on Saturday for planning and carrying out terrorist attack or having connections to terrorism. Though majority of those were Sunni extremists, four of them were Shia-Muslims and one of which is prominent Saudi cleric Nimr-al-Nimr. Execution sparked angers and protests across Middle East and condemnation around the world. US, UN and EU, all have condemned the killings, while extremists group like Hezbollah, ISIL threatened retaliation.

Iran officially condemned the killing announcing that this action would ultimately lead to demise of Al-Saud, ruling monarch family of Saudi Arabia. After protesters with stones and petrol bombs attacked Saudi Embassy in Tehran, memorizing many of similar attacks on US Embassy more than three decades ago, Saudi Arabia gave Iran's diplomatic mission and related entities 48 hours to leave and publicly announced the cut off.

Experts point out that Syrian tensions, Yemen fight may continue to linger as relations between these two arch rivals got colder over the weekend.

However tensions between these two rivals, this time around has been bearish for oil market rather than traditional bullish boost. Arch rivalry between these two has been one of the key reasons that left oil producers' cartel OPEC ceiling less in production.

These two are likely to keep fighting for market share as western countries are ready to pull the plug on Iran Sanctions, bringing the nation back in oil market. Iran is expected to boost supply by half a million barrel per day by end 2016.

Without further escalation and supply shut off, oil's rally could be limited.

WTI is currently trading at $37.9/barrel, up more than 2%, while Brent is trading at 40 cents/barrel premium.