Oil Rises to New Three-Year Highs

Oil Rises to New Three-Year Highs

The difference between the two benchmarks briefly widened to more than $8 a barrel, the widest gap since April 2015, reflecting surging USA crude supplies and a greater geopolitical risk to Brent-based crudes.

USA light crude closed 35 cents, or 0.5 percent, higher at $71.31 a barrel, also not far off the day's peak at $71.92, its highest since November 2014.

Danish oil product tanker operator Torm on Tuesday said it has stopped taking new orders in Iran as a effect of USA plans to reimpose sanctions on Tehran.

However, the tailwinds for crude oil now vastly outnumber the headwinds, so prices will likely continue upwards in the coming days, especially in light of the escalation in Israel following the move of the USA embassy from Tel Aviv to Jerusalem that ignited protests in Gaza, prompting an immediate military response from the IDF.

Oil prices rose to multiyear highs on Tuesday, bolstered by signs that major oil producers are still committed to reducing supply and the rising specter of USA sanctions against Iran.

World oil prices have surged more than 70 percent over the past year as demand has risen sharply while production has been restricted by the Organization of the Petroleum Exporting Countries, led by Saudi Arabia, and other producers, including Russian Federation.

The United States last week withdrew from an global nuclear accord with Iran and announced renewed sanctions against the country.

"European and Asian buyers of Brent are pricing in the risks and realities of the fallout from sanctions on Iran to increased tensions in the Gaza strip, as well as the inability of traditional Brent oil producers to fill that void", said Phil Flynn, senior market analyst at Price Futures Group.

The data poses worries that near-record high refinery runs may be short-lived.

World supply, meanwhile, rose 1.78 million bpd in April from a year earlier, driven predominantly by non-OPEC production.

Experts pointed out that geopolitical concerns, tightening product inventories and robust demand would continue to provide support for prices.

After the plans for the United States to pull out of the Iran nuclear deal became known, oil prices surged over the uncertainty of what would happen to Iran's oil industry if the U.S. reimposed sanctions, limiting Iran's production.

The pending USA sanctions against Iran have also contributed to the price rise.

The agency estimates that global oil inventories fell an average of almost 0.6 million barrels per day (bpd) in each of the past five quarters (January 2017 through March 2018).