Oil rose to its highest since May 2015 yesterday, supported by unrest in Iran that has raised concerns about supply risks, cold weather in the United States which is boosting demand and OPEC-led output cuts.
Six days of anti-government protests in OPEC’s third-largest producer have added a geopolitical risk premium to oil prices, although Iran’s production and exports have not been affected.
Brent crude, the international benchmark, was down 1 cent at $67.83 a barrel at 1318 GMT. It traded as high as $68.27 earlier in the session. U.S. crude CLc1 rose 15 cents to $61.78 and also touched the highest since May 2015.
“There is enough support for prices with the cold in the U.S. and the geopolitical factor,” said Olivier Jakob, oil analyst at Petromatrix.
Freezing weather in the United States has spurred short-term demand, especially for heating oil.
Aside from the spike in May 2015, oil is trading at its highest since December 2014 – the month after a decision by the Organization of the Petroleum Exporting Countries to stop cutting output to support prices, a move that deepened a price collapse.
Analysts at JBC Energy said the price reaction to the Iranian unrest was overdone, while Swiss bank Julius Baer said prices projected “an overly rosy picture” that left the market at risk of profit-taking.
OPEC, supported by Russia and other non-members, began to hammer out a deal to cut supplies again in 2016, aiming to lift prices by removing a glut built up in the previous two years.
Their cuts started a year ago and compliance has been high, aided by involuntary output declines in Venezuela, whose economy is collapsing, plus unrest in Nigeria and Libya. Producers have decided to extend the deal until the end of 2018.
OPEC’s cuts are helping reduce global inventories. In the United States, crude stocks fell by 5 million barrels in the latest week, the American Petroleum Institute said on Wednesday before the government’s supply report later on Thursday.
Byron Wien of Blackstone listed the prospect of U.S. crude topping $80 as one of 10 potential shockers for investors in 2018 in his annual list of surprises.
Balancing the trend towards a tighter market is higher production in the United States, where the OPEC-led effort to push prices up is spurring more shale oil output.