Oil price rose further above $68 a barrel yesterday to the highest since May 2015, supported by unrest in Iran that raised concerns about supply risks, cold weather in the United States (US), boosting demand and OPEC-led output cuts.
Since mid-December WTI crude oil has added about $5 a barrel and settled on Wednesday at its highest price in three years at $61.63, and it posted a 52-week high at $62.21 early this morning.
Brent futures prices for the next six months are already trading in a backwardation of around $2 per barrel, which is consistent with a market that is already tight and undersupplied.
The market has been in process of pricing in a ramped-up level of geopolitical risk following the anti-government protests in OPEC member Iran, which has more than offset any concerns about prospects for rising USA crude supply. Iran is OPEC's third largest crude producer. United States crude rose 15 cents to $61.78 and also touched the highest since May 2015.
Brent for March settlement advanced 23 cents to end the session $68.07 a barrel on the London-based ICE Futures Europe exchange, the highest since December 2014. Iranian oil industry and shipping sources said protests have had no impact on oil production or exports so far.
"There is enough support for prices with the cold in the USA and the geopolitical factor", said Olivier Jakob, oil analyst at Petromatrix.
Pushed up by protests in Iran, supply cuts by OPEC and Russian Federation, and the return to full operations of the Forties pipeline system in the North Sea, oil prices posted their strongest opening to a year since 2014.
At the same time, expectations for global demand have strengthened as economies around the world have shown strong growth. There is also concern that Russian Federation will double-cross the market and not cap its production as promised.
For one, they noted that they had to apprise DOE officials of the presence of "dead stock" in inventories or products that can no longer be made available for sale - which is a standard experience in oil markets globally. Supported by the global inventory drawdown and geopolitical woes, however, oil prices rose steadily in the fourth quarter of 2017 to end the year at above $60 per barrel WTI and $66 per barrel Brent.
US oil prices have been on a steady rise in recent months and as expected ended 2018 strongly, above $60 a barrel.
Oil broke above $62 in NY as the USA supply picture appeared tighter, with crude inventories at Cushing, Oklahoma sliding below their five-year average.
The decline today is "more related to profit-taking after a good week", said Giovanni Staunovo, a commodity analyst at UBS Wealth Management.