* U.S. and China drop tariff threats
* Oil markets tight on OPEC cuts, looming U.S. sanctions vs Iran
* Plunging output in Venezuela also supporting market (Recasts, changes headline, adds comments; changes dateline to NEW YORK, previously LONDON)
By Jessica Resnick-Ault
NEW YORK, May 21 (Reuters) - Crude prices strengthened on Monday, reversing course as geopolitical tensions continued to support the market and a trade war between the U.S. and China was declared “on hold.”
Geopolitical concerns that U.S. sanctions on Iran could curb the country’s crude exports have led crude prices to trade higher in recent weeks, and the market is now weighing the possibility of additional sanctions on Venezuela following the country’s presidential election.
Brent crude futures gained 23 cents to trade at $78.74 by 11:22 a.m. EDT [1522 GMT], having retreated to $78.10 earlier in the session. U.S. crude futures were up 56 cents at $71.84.
Brent pushed past $80 a barrel last week for the first time since 2014, and the market may again try to clear that hurdle, said Gene McGillian, Vice President of Research at Tradition Energy in Stamford, Connecticut.
“It seems as if the pull backs are just short-term profit taking and we will see whether people are going to be willing to drive the market through $80 again,” he said.
The strength came as U.S. Secretary of State Mike Pompeo’s remarks on Iran strategy showed that the United State was after regime change in the Islamic Republic, a senior Iranian official told Reuters on Monday.
Venezuela’s socialist President Nicolas Maduro faced widespread international condemnation on Monday after his re-election in a weekend vote his critics denounced as a farce cementing autocracy in the crisis-stricken oil producer.
The United States is actively considering oil sanctions on OPEC member Venezuela, where output has dropped by a third in two years to its lowest in decades. PRODN-VE
“The spectre of U.S. oil sanctions on the embattled Latin American producer now looms large as Washington strives to tighten the financial noose,” PVM Oil Associates strategist Stephen Brennock said in a note.
A possible U.S. trade war with China is “on hold” after the world’s two largest economies agreed to drop their tariff threats while they work on a wider trade agreement, U.S. Treasury Secretary Steven Mnuchin said on Sunday, giving global markets a lift in early Monday trade.
Stabilizing trade relations between the countries could boost oil demand, Tradition’s McGillian said.
Rising output from U.S. shale and key OPEC producers could end the rally, BP Chief Executive Bob Dudley told Reuters. Dudley said he expected a flood of U.S. shale and a possible reopening of OPEC taps to cool oil markets after crude rose above $80 a barrel last week.
Dudley said he saw oil prices falling to between $50 and $65 because of surging shale output and OPEC’s capacity to boost production to cover a potential shortfall in Iranian supplies owing to U.S. sanctions.
The energy ministers of Saudi Arabia and the United Arab Emirates last week voiced concern about recent oil market volatility and plan to meet Russian counterpart Alexander Novak in St Petersburg to continue consultations.
“It’s worth watching St Petersburg at the end of this week. That could provide the key input for the next few weeks,” said Petromatrix strategist Olivier Jakob.
Fund managers cut their holdings of U.S. crude to the lowest level this year, according to data from the U.S. Commodity Futures Trading Commission on Friday. (Additional reporting by Amanda Cooper in London and Henning Gloystein in Singapore; Editing by David Goodman and Diane Craft)