Oil prices climbed above $80 a barrel on Thursday for the first time since November 2014, before retreating on a stronger dollar and climbing U.S. output to end unchanged.
A rapid slide in oil supply from Venezuela, concern that U.S. sanctions will disrupt exports from Iran, and falling global inventories have all combined to push oil prices up nearly 20 percent in 2018.
The U.S. dollar hit its highest level in four months against the yen as yields on benchmark U.S. government bonds hit a seven-year high.
A stronger dollar makes oil more expensive for importing nations such as those in Asia, which are facing a trillion dollar bill for their imports this year as demand in the continent reaches a record high.
Brent crude futures reached an intraday high of $80.50 a barrel, but later gave up most gains to settle up 2 cents at $79.30 a barrel.
U.S. West Texas Intermediate (WTI) crude futures settled unchanged at $71.49, after earlier also hitting their highest since November 2014 at $72.30 a barrel.
Global inventories of crude and fuel have dropped sharply in recent months owing to robust demand and OPEC-led production cuts.
The Organization of the Petroleum Exporting Countries and non-OPEC global producers, that have curbed output since the start of 2017, will next meet to discuss supply policy in Vienna in June.
However, Venezuela’s economic crisis, and the prospect of additional U.S. sanctions following its May 20 elections could hit the market further.
“I expect that Venezuelan production will continue to decline and the upcoming elections hold the specter of the U.S. imposing additional sanctions on Venezuela that may hasten the loss of supply,” said Andrew Lipow, president of Lipow Oil Associates, a consultancy in Houston.
He said Iranian oil sales could plunge by 300,000 to 500,000 bpd in the next six weeks as well, after U.S. President Donald Trump’s decision this month to withdraw from an international nuclear deal with Iran and revive sanctions that could limit crude exports from OPEC’s third-largest producer.
Record domestic oil output and exports have capped the rally in the United States, and led to a rising premium for Brent above WTI, which traded at $8.20 a barrel on Thursday, the widest spread since April 2015.
U.S. crude output has soared 27 percent in the last two years to a record 10.72 million barrels per day, putting it within reach of top producer Russia’s 11 million bpd.
That has not been enough to stop oil prices rallying, energy ministers of OPEC’s largest producer Saudi Arabia and its neighbor and fellow OPEC member United Arab Emirates to note that the market remains well supplied.
The two ministers, in a joint statement, blamed volatility in prices on international political tensions. They plan to meet their Russian counterpart in Saint Petersburg in a week to discuss the oil market.
Global oil inventories were expected to drop further as the peak demand summer driving season nears, offsetting increases in U.S. shale output, Bernstein analysts said.
Several banks have in recent days raised their oil price forecasts, citing tighter supplies and strong demand.
Further supporting prices, Royal Dutch Shell said it was halting crude exports from a major Nigerian pipeline.
On the flip side, high oil prices would hurt consumption, the International Energy Agency warned on Wednesday as it lowered its global oil demand growth forecast for 2018 to 1.4 million bpd from 1.5 million bpd.
The IEA said global oil demand would average 99.2 million bpd in 2018. U.S. bank Goldman Sachs said consumption would cross 100 million bpd during the peak summer period.