The possibility of new sanctions on Iran spooked investors and traders which drove the price of crude oil to $75 a barrel which is the highest mark hit by it in more than three and half years.
Brent crude reached as high as $75.47 before, its rise for the sixth consecutive day, before falling back under the $75 mark.
A decision on whether to abandon a nuclear deal with Iran and re-impose sanctions would be taken by the U.S. on May 12.
Global crude supplies could be further tightened by such sanctions on the third-biggest oil producer in the Opec cartel.
Ever since a production curb to limit oil supply to the world glut was initiated by the 14 nations in Opec, as well as other producers, there has been a steady rise in prices of oil.
Those production cuts have been extended till the end of 2018 in an agreement between eth parties in November last year.
The most significant element of Brent’s recent rally is the possibility of U.S. President Trump separating the U.S. from the 2015 nuclear deal hat it had signed with Iran and a number of other world powers, said Tamas Varga of oil broker PVM.
“All bets are off on the US staying in the nuclear agreement,” he said.
U.S. economic sanctions against Iran would be restored by Trump unless what he has called “terrible flaws” in the agreement are not fixed by the European allies by 12 May, the US president has said.
The agreement is desired to be kept in place by all of the other countries that had signed the deal including the UK, France, Germany, Russia and China. that deal has stopped the nuclear program of Iran against lifting of most of the international sanctions on the country.
A severe blow to the nuclear agreement would be dealt with by the restoration of US economic sanctions on Iran.
Global oil prices could be jacked up by as much as $5 a barrel by any new sanctions by the U.S on Iran, said Stephen Innes of futures brokerage OANDA.
While the production cuts by the Opec has been able to reduce the global oil glut, it the gains made have bene partially offset by increased production of oil and shale gas in the U.S.
New refineries have been opened up in China and Vietnam following growth in demand for oil from Asia and because of demand reaching a peak. Asia has the largest consumption place of roil in the world.
(Adapted from BBC.com)