Oil price remains close to three-year highs as ongoing supply cuts reduce inventories

Oil prices were firm on Friday near three-year highs reached earlier this week as ongoing OPEC-led supply cuts gradually drawn down excess supplies.

Brent crude oil futures were at $73.69 per barrel at 0129 GMT, down 9 cents from their last close.

U.S. West Texas Intermediate (WTI) crude futures were down 7 cents at $68.22 a barrel.

Led by top exporter Saudi Arabia, the producer cartel of the Organization of the Petroleum Exporting Countries (OPEC) has been withholding production since 2017 to draw down a global supply overhang that had depressed crude prices between 2014 and 2016.

As a result of a gradually tightening market, both Brent and WTI hit their highest levels since November 2014 earlier this week, at $74.75 and $69.56 per barrel respectively.

The tighter oil market is also starting to feed into refined products, which use crude as their main feedstock to make fuels such as gasoline or diesel

“Signs of tightness are emerging in product markets as stocks saw the largest week-on-week draw since October 2016 … The U.S. led the draws but was also aided by draws in Singapore,” said U.S. bank Morgan Stanley.

Beyond OPEC’s supply management, crude prices have also been supported by an expectation that the United States will re-introduce sanctions on OPEC-member Iran.

One of the factors that has somewhat held back prices from rising even further has been rising U.S. production, which has jumped by a quarter since mid-2016 to 10.54 million barrels per day, making the United States the world’s second-biggest producer of crude oil behind only Russia, which pumps almost 11 million bpd.