On Thursday, oil reached its highest level since May 2015, supported by unrest in Iran and the boost in demand because of the cold weather in the United States as well as the ongoing OPEC-led output cuts.
Six days of unrest in OPEC’s third-largest producer, Iran, have generated a geopolitical risk premium to oil prices, although the country’s production and exports have not been affected by the protests.
Brent crude, the international benchmark, was down 1 cent at $67.83 a barrel at 1318 GMT. Earlier in the session, it traded as high as $68.27. U.S. crude gained 15 cents to $61.78 and hit its highest level 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.
The freezing weather in the United States has also supported the rise as it has ignited a short-term demand, particularly for heating oil. Besides the peak in May 2015, oil is trading at its highest level since December 2014.
Analysts at an energy firm warned that the price reaction to the Iranian unrest was over the top, while a swiss bank stated that the prices projected “an overly rosy picture” which left the market at risk of profit-taking.
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OPEC as well as non-OPEC members including Russia, initiated an agreement to cut supplies in 2016, with the goal of lifting prices by diminishing the two-year excess of supply. The cuts began last year, and the producers have decided to extend the agreement through the end of 2018.
OPEC led cuts are assisting to reduce global inventories. In the latest week in the United States, crude stocks dropped by 5 million barrels, according to the American Petroleum Institute prior to the government’s supply report that is due to be released Thursday.
Balancing the trend towards a tighter market is increased United States production, where the OPEC-led effort to drive up the price of oil is encouraging more shale oil output.