Oil hits multi-year high on tight supply, Iran sanctions

london - Strong global demand has been outstripping production

Oil prices hit a 3-1/2-year high on Tuesday, supported by tight supply and planned US sanctions against Iran that are likely to restrict crude oil exports from one of the biggest producers in the Middle East.

Brent crude oil reached $79.22 a barrel, up 99 cents and its highest since November 2014. By 1100 GMT, Brent was up 90 cents at $79.13. US light crude was 60 cents higher at $71.56 a barrel, also close to its highest since November 2014.

World oil prices have surged by more than 70 per cent over the last year as demand has risen sharply but production has been restricted by the Organisation of the Petroleum Exporting Countries, led by Saudi Arabia, and other producers including Russia.

Now the United States has announced it will impose sanctions on Iran over its nuclear programme, raising fears that markets will face shortages later this year when trade restrictions come into effect.

"Oil prices are touching fresh multi-year highs as robust demand prospects coupled with a tense geopolitical backdrop make for a potent bullish cocktail," said Stephen Brennock, analyst at London brokers PVM Oil Associates.

Norbert Racker, head of macro and commodity research at private bank Julius Baer, said that at the top of everyone's mind was "the potential impact on Iranian oil exports and thus the risk of another meaningful supply disruption".

In China, the world's biggest oil importer, refinery runs rose nearly 12 per cent in April compared with the same month a year ago, to around 12.06 million barrels per day (bpd), marking the second-highest level on record on a daily basis, data showed on Tuesday. - Reuters