Oil rose to its highest level since May 2015 on Thursday, supported by unrest in Iran that has raised concerns about supply risks, cold weather in the U.S. that is boosting demand and output cuts led by the Organisation of the Petroleum Exporting Countries (Opec).
Brent crude futures were at $68.03 a barrel, 4 cents below their last settlement, but not far off the $68.27 high from the day before, also the highest since May 2015.
The continuous rise in USA shale production past year offset part of the OPEC-Russia production cuts and capped oil price gains.
Saudi Arabia's oil minister, who is the organisation's de facto leader, has reiterated that stocks are still around 150 million barrels too high and it would be premature to discuss an exit strategy or change of course. Oil declined after Saudi Arabia told OPEC it raised production back above 10 million barrels a day in February, reversing about a third of the cuts it made the previous month.
As we roll into 2018, the higher oil prices continue to drive increased USA shale production, and set the stage for yet another year of the OPEC-shale tug-of-war that will influence the price of oil.
Fracking had already revolutionized USA oil production, despite serious environmental concerns. U.S. crude settled up 38 cents at $62.01, after earlier hitting $62.21, its highest since May 2015.
OPEC's cuts are helping reduce global inventories.
The market's move into backwardation - where spot prices trade higher than contracts for delivery in later months - makes holding long financial bets in oil more attractive as investors can earn a yield each month by rolling positions forward.
"Political unrest in the Middle East, alongside assumptions of OPEC extending its agreement to cut production, helped to bolster oil prices in late 2017", observed a Moody's Senior Vice President, Terry Marshall said.
The higher pricing is nearly entirely due to the withdrawal of about 1.8 million barrels a day in global crude oil supplies resulting from the OPEC-initiated production cuts.
That is down 20 percent from peaks last March and close to the five-year average of 420 million barrels.
But the more prices increase, especially with Brent prices near $70, and WTI prices above $60, the more likely US shale drilling and production rates will accelerate, which will tend to frustrate the objective of lowering stocks.
Having reached the levels of early December 2014 of about roughly $65 for the Brent and $60 for the WTI, benchmark oil futures have now the ambition to break permanently those levels which are now clearly in reach.