Oil hovers near $80 as Saudi Arabia plans output increase

LONDON, Oct 22 (Reuters): Oil hovered around $80 a barrel on Monday, lifted by a diplomatic crisis between Saudi Arabia and the West, just two weeks before US sanctions potentially choke off Iranian crude supplies.

Saudi Energy Minister Khalid al-Falih told Russia's TASS news agency that his country had no intention of unleashing a 1973-style oil embargo on Western consumers, but rather was focused on raising output to compensate for supply losses elsewhere, such as Iran.

Several US lawmakers have suggested imposing sanctions on Saudi Arabia over the killing of Saudi journalist Jamal Khashoggi, while the kingdom, the world's largest oil exporter, pledged to retaliate against any sanctions with "bigger measures".

Falih said Saudi Arabia would soon raise output to 11 million barrels per day (bpd) from the current 10.7 million. He added that Riyadh had capacity to increase output to 12 million bpd.

"The international pressure on the Saudi leadership remains in place, as does the possibility of sanctions," Commerzbank said in a daily note.

Brent crude futures LCOc1 rose 16 cents to $79.94 a barrel by 1117 GMT, while US crude futures CLc1 gained 10 cents to $69.22 a barrel.

"Politics are coming into the picture and maybe this is what (the Saudis) will do, but as far as next year's supply/demand balance is concerned, it's not justified for them to increase production," PVM Oil Associates strategist Tamas Varga said.

US sanctions on Iran's oil sector start on Nov. 4 and analysts believe up to 1.5 million bpd in supply could be at risk.

"The big unknown is how much Iranian oil will be off the market and we'll know in about a month's time. Then we'll have a clearer picture of what to expect for the first quarter of next year," Varga said.