Oil continued its rally into the new year as tensions simmered in the Middle East and crude stockpiles are poised for further withdrawal. Brent was up 0.3 per cent at $66.20 per barrel, while West Texas Intermediate was up 0.02 per cent at $61.19 per barrel at 6.13pm UAE time. Protestors stormed the US embassy in Baghdad on Tuesday in retaliation for strikes against the Iran-aligned Kataib Hezbollah militia group. Hundreds of supporters and members of Iraq’s Kataib Hezbollah militia breached the outer compound wall of the embassy in Baghdad and set it on fire on Tuesday. Washington deployed 750 troops to the country to fortify its position in the country in response. The protest from the pro-Iranian militia supporters marked a new escalation in geopolitical conflict in the Middle East between the US and Iran, whom Mr Trump blamed for the attack on his country's embassy. "....Iran will be held fully responsible for lives lost, or damage incurred, at any of our facilities. They will pay a very BIG PRICE! This is not a Warning, it is a Threat. Happy New Year!" Mr Trump tweeted on Tuesday. Iran's Supreme Leader Ayatollah Ali Khamenei meanwhile dismissed Mr Trump's threats against the country saying Tehran would fight back if needed. “If Iran decides to confront a country, we will do that openly ... If anyone threatens our nation’s interests we will fight back ... without any hesitation," Mr Khamenei said on Iranian state television. The escalation follows a year of tensions between the two sides, with Washington accusing Tehran of masterminding a spate of attacks on tankers transiting the Strait of Hormuz as well as the strikes on Saudi Aramco's facilities, which temporarily wiped off 5 per cent of global supply in September. Oil prices have also rallied due to optimism over trade tensions between the US and China easing in the new year, with both sides set to sign a phase one pact in a fortnight, as well as a stronger inventory draw in the US. US crude stockpiles fell 7.8 million barrels during the week ending December 27, according to a report from the American Petroleum Institute, which was lower than analysts' expectations. Markets are also expected to be tight as Opec+ led by Saudi Arabia and Russia begin implementing their deepened production curbs of 2.1 million barrels per day from January. Oil ended its best year since 2016 on Tuesday, with Brent prices gaining 23 per cent and WTI gaining around 34 per cent in 2019.