Brent crude, the international oil benchmark, rose above $70 a barrel on Thursday for the first time since 2014, extending the market’s strong start to the year.
Oil has increasingly found support as crude stockpiles have fallen and market participants have focused on geopolitical risk in producer countries.
US president Donald Trump is expected to make a decision on whether to extend a suspension on sanctions against Iran this week.
Separately, Houthi rebels have threatened to cut off Red Sea shipping lanes in response to Saudi-led coalition advances. Local news reports also said that Saudi air defence forces had intercepted a ballistic missile fired by Houthi militia on Najran city, in the south west of the kingdom.
Brent rose as high as $70.05 a barrel on Thursday, its highest since December 2014. It pared its gains in late afternoon trading, up 53 cents to $69.72 a barrel.
“There is a really strong bullish sentiment in the market and it is feeding off itself, taking Brent to $70 a barrel,” said Alexander Poegl at consultancy JBC Energy. “Question is how long this upside rally can continue.”
West Texas Intermediate, the US marker, gained further ground adding 98 cents to $64.56 a barrel — also its highest in more than three years.
Crude prices, which spiralled lower in mid-2014 after hitting a peak of $115 a barrel, have found support as production cuts by Opec countries and allies outside the cartel such as Russia have helped to curb surplus inventories. US crude stocks fell 4.9m barrels in the week ending January 5, to 419.5m barrels, according to US government data published on Wednesday.
An extension of the supply cut deal for all of 2018 has given prices a further boost, bolstering the economies of oil-rich countries and the balance sheets of energy companies. US energy shares are the best performing S&P 500 sector this year, up 6.4 per cent, while a rising oil price has spurred a sharp upward revision in earnings estimates for 2018.
Oil prices have risen in recent days despite stronger than anticipated US government forecasts for US production. Output growth is expected to break records this year with production topping 11m b/d in 2019.
Gary Ross, head of oil at S&P Global Platts Analytics, who first forecast last year that oil would go to $70 a barrel, said there was the potential for the market to keep rising as he believed many were still overestimating the size of remaining inventories.
“There is no global surplus any more, Opec is looking at phantom stocks,” said Mr Ross. “The price will continue to move up until either [US] shale producers add rigs or Opec stops restricting production.”
Demand for crude has been robust in the winter months following greater consumption of refined fuels. Forecasts for stronger economic growth, supporting oil demand, have proliferated while a weaker dollar is also helping crude prices.