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Oil prices held firm on Friday near three-year highs reached earlier this week as ongoing OPEC-led supply cuts gradually draw down excess supplies.
Brent crude oil futures were at $73.87 per barrel at 0209 GMT, up 9 cents, or 0.1 percent, from their last close. US West Texas Intermediate (WTI) crude futures were up 11 cents, or 0.2 percent, at $68.40 a barrel. Both Brent and WTI hit their highest levels since November 2014 earlier this week, at $74.75 and $69.56 per barrel respectively.
Oil prices have been pushed up by a gradually tightening market. Led by top exporter Saudi Arabia, the producer cartel of the Organization of the Petroleum Exporting Countries (OPEC) has been withholding production since 2017 to draw down a global supply overhang that had depressed crude prices between 2014 and 2016.
The tighter oil market is also starting to feed into refined products, which use crude as their main feedstock to make fuels such as gasoline or diesel. “Signs of tightness are emerging in product markets as stocks saw the largest week-on-week draw since October, 2016 ... The US led the draws but was also aided by draws in Singapore,” said US bank Morgan Stanley.
This tightness is also a result of healthy oil demand. “Global oil demand data so far in 2018 has come in line with our optimistic expectations, with 1Q18 likely to post the strongest year-on-year growth since 4Q10 at 2.55 million barrels per day,” US bank Goldman Sachs said in a note published late on Thursday.
Beyond OPEC's supply management, crude prices have also been supported by an expectation that the United States will re-introduce sanctions on OPEC-member Iran. “The first key geopolitical issue is the expiration of the current US waiver of key sanctions against Iran,” said Standard Chartered Bank said in a note this week, referring to a deadline on May 12 by when US President Donald Trump will decide whether or not to re-introduce sanctions against Iran.
One factor weighing on price gains has been rising US production, which has jumped by a quarter since mid-2016 to 10.54 million barrels per day, making the United States the world's second biggest producer of crude oil behind only Russia, which pumps almost 11 million bpd.
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