Oil Slumps Towards 11-Year Low, Ignoring Mideast Tensions

NEW YORK, Jan 5 (Reuters) - Oil prices dropped over 2 percent towards its 11-year low on Tuesday, as traders shrugged off growing tensions between two of the world's biggest oil producers and focused instead on a stronger U.S. dollar and swelling U.S. crude inventories.

Relations between Saudi Arabia and Iran collapsed in acrimony this week after the Kingdom's execution of a Shi'ite cleric set off a storm of protests in Tehran. On Tuesday, Saudi state news agency reported that four armed men set on fire a bus transporting workers in the nation's oil-producing Eastern Province.

Instead of fanning fears of a disruption in supplies, however, some delegates from the Organization of the Petroleum Exporting Countries said the rift could exacerbate oversupply concerns by quashing already faint hope that OPEC could one day agree to cut output.

The oil market fell under additional pressure from a firmer U.S. dollar, which gained 0.5 percent to hit a one-month high as traders sought safer havens, and signs of a further swell in already record U.S. inventories.

Brent crude prices fell 80 cents to settle at $36.42 a barrel. Prices hit an 11-year low of $35.98 a barrel just before Christmas, capping a year where the benchmark's value dropped by more than a third.

U.S. West Texas Intermediate (WTI) crude slipped 79 cents to settle at $35.97 a barrel.

The discount for U.S. WTI crude versus Brent <CL-LCO1=R> widened by some 25 cents after a report that BP Plc was conducting planned work at a large crude unit at the 413,5000 bpd Whiting, Indiana, refinery.