Oil prices clocked up to three and a half year highs on Thursday as traders adjusted to the prospects of renewed U.S. sanctions against major crude exporter Iran amid an already tightening market.
The United States plans to impose new sanctions against Iran, which produces around 4 percent of global oil supplies, after abandoning an agreement reached in late 2015 which limited Tehran’s nuclear ambitions in exchange for removing U.S.-Europe sanctions.
Oil prices rose sharply in response to the announced measures.
Brent crude oil touched its highest since November 2014 at $77.20 a barrel. The benchmark contract was up $1.90 a barrel, or more than 2.5pc, at $76.75 by 1335 GMT.
U.S. West Texas Intermediate (WTI) crude futures also marked a November-2014 high, at $71.75 a barrel at the time.
In China, which is Iran’s single biggest buyer of oil, Shanghai crude futures posted their biggest intra-day rally since their launch in March, rising more than 4 percent to a dollar-denominated record of around $73.40 per barrel.
Analysts had little hope that opposition to the U.S. action would prevent sanctions from going ahead.
“Iran’s exports of oil to Asia and Europe will almost certainly decline later this year and into 2019 as some nations seek alternatives in order to avoid trouble with Washington and as sanctions start to bite,” said Sukrit Vijayakar, director of energy consultancy Trifecta.
US Crude Oil inventories fell by 2.2 million barrels in the week to May 4, to 433.76 million barrels, according to the Energy Information Administration (EIA), slightly above the 420 million barrels five-year average level.
One factor that could prevent markets from tightening further is soaring U.S. oil output.
Weekly U.S. crude oil production hit another record last week, climbing to 10.7 million barrels per day (bpd).
That’s up 27 percent since mid-2016 and means U.S. output is creeping ever closer to that of top producer Russia, which pumps around 11 million bpd.