Although the dispute between the countries has not directly and immensely affected crude oil prices, the Brent crude futures recently rallied by 1% after concerns on the ongoing rift led to speculation of cut ties between the producing countries.
As of 1810 BST, front month West Texas Intermediate crude oil futures were down by 5.1% to $45.85 per barrel on the ICE.
Still, Standard Chartered analysts said their market balance projections indicated a 1.4 million barrels a day global supply deficit in the second half of the year, even allowing for a rapid increase in United States output.
The turmoil in the Middle East comes amid concerns that rising USA output could exacerbate the oversupply problem, as US crude production has averaged more than 9.3 million bpd for four straight weeks and is expected to reach almost 10 million bpd by next year.
The EIA, instead of reporting what was expected to be the ninth straight drop in USA crude oil inventory, reported a 3.3-million-barrel increase in supply.
Crude-oil futures fell Tuesday, as investors shifted their focus back on a supply glut with USA producers continuing to expand their oil digging operations despite softening prices. Oil fell by more than 4% last week, the largest weekly decline since early May, after investors were disappointed that the Organization of the Petroleum Exporting Countries didn't deepen its production cuts at their meeting on May. 25.
Reports of tension among OPEC members may also be playing into lower oil prices over the past week.
There are already doubts that the effort to curb production by nearly 1.8 million bpd is seriously denting crude exports. Some were already concerned about rising production from Libya and Nigeria, which are exempt from the agreement.
Total gasoline inventories also increased by 3.3 million barrels last week, according to the EIA, and have moved above the upper limit of the five-year average range.
"The market is still awash in oil, and it's waiting to see more concrete signs of global oil inventories declining", oil market analyst Andy Lipow told the Houston Chronicle.