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

By Christopher Johnson

LONDON (Reuters) - 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.

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.

Brent crude was down $1.30 at $57.89 a barrel by 1330 GMT after hitting a low of $57.76. U.S. crude was down $1.20 at $50.23.

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 escalation of the Middle East battle could disrupt world crude supplies.

The Saudi-led coalition launched more air strikes on Friday against the Yemeni capital, 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.

But Yemen is a small oil producer, with an output of around 145,000 bpd in 2014 and analysts say the conflict there is very unlikely to hit Middle East fuel supplies.

"The impact on oil market balances is negligible," Energy Aspects analyst Virendra Chauhan told Reuters Global Oil Forum.

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

Iran has around 30 million barrels stored offshore ready for sale, oil that could flood an already saturated market.

Although any deal with Iran would be unlikely to lead to higher Iranian oil exports before the second half of the year, it still weighed on market sentiment.

"The risk for the weekend and early next week is the possibility of a political agreement (with) Iran," said Swiss analyst Olivier Jakob. "We want to be positioned for the possibility of the Strait of Hormuz opening up rather than for the possibility of the Bab el-Mandeb shutting down."

(Additional reporting by Henning Gloystein and Keith Wallis in Singapore; Editing by Dale Hudson and David Evans)