Oil. Picture: REUTERS
Oil. Picture: REUTERS

London — Oil prices hit their highest level since November 2014 on Thursday, with Brent crude creeping closer to $80 a barrel as supplies tighten and tension with Iran simmers.

Brent crude futures rose 32c to $79.60 a barrel at 8.46am GMT. US West Texas Intermediate (WTI) crude futures were up 29c at $71.78 a barrel. This was not far off Tuesday’s $71.92 a barrel — also a level not seen since November 2014.

The prospects of a sharp drop in Iranian oil exports in the coming months due to renewed US sanctions following US President Donald Trump’s decision to withdraw from an international nuclear deal with Tehran has lifted oil prices in recent weeks.

On Wednesday, France’s Total warned it might abandon a multi-billion-dollar gas project in Iran if it could not secure a waiver from US sanctions, casting further doubt on European-led efforts to salvage the nuclear deal.

"The geopolitical noise and escalation fears are here to stay," said Norbert Rücker, head of macro-and commodity research, at Swiss bank Julius Bär. "Supply concerns are top of mind after the US left the Iran nuclear deal."

Global inventories of crude oil and refined products dropped sharply in recent months due to robust demand and production cuts by the world’s top producing countries. Oil stocks were expected to drop further as peak summer driving season nears, offsetting increases in US shale output, said analysts at Bernstein.

"While the sharp rise in US production and rig count has raised questions on the sustainability of inventory draws throughout 2018, we believe inventories will continue to draw as we enter the summer driving season in 2018," they said.

Several banks have, in recent days, raised their oil price forecasts, citing tighter supplies and strong demand.

Everything bullish?

However, high oil prices could hit consumption, the International Energy Agency (EIA) warned on Wednesday, lowering its global oil-demand growth forecast for 2018 to 1.4-million from 1.5-million barrels per day (bpd).

Asia’s demand is at record highs and with rising prices its crude could cost $1-trillion this year, about twice what it paid during the market lull of 2015-16.

The IEA said global oil demand would average 99.2-million bpd in 2018, although US bank Goldman Sachs said consumption would cross 100-million bpd "this summer".

Leading production increases is the US, where crude output has soared by 27% in the last two years, to a record 10.72-million barrels a day, putting the US within reach of top producer Russia’s 11-million barrels a day. Goldman Sachs, though, said even with a slowdown in demand and soaring US output, global oil markets would remain tight.

"US shale cannot solve the current oil supply problems," it said, arguing that US oil would not be sufficient to offset production losses from Iran, Venezuela and Angola. Goldman also said the tight market left "room for oil cartel Opec to exit [its production cuts] without significant price impact".