Oil rallied this month to the highest since 2014 as tensions in the Middle East escalated and after US President Donald Trump withdrew from a 2015 accord that had curbed Iran's nuclear program in exchange for sanctions relief.
Brent for July settlement rose 44c to $78.67 a barrel on the London-based ICE Futures Europe exchange, after Monday's $1.11 gain.
OPEC and its partners chose to extend its production cuts till the end of 2018 in Vienna on November 30, as the oil cartel and its allies step up their attempt to end a three-year supply glut that has savaged crude prices and the global energy industry.
Brent crude oil reached an intraday peak of $79.47 a barrel, up $1.24 and its highest since November 2014, before retreating to $78.70, up 47 cents, by 1:12 p.m. EDT (1712 GMT). This compares with 340 million barrels when OPEC, Russia, and several other producers agreed to cut production to stimulate prices.
Crude futures hit the highs as the markets anticipated a sharp fall in Iranian crude supply once USA sanctions take effect later this year.
Greg McKenna, chief market strategist at futures brokerage AxiTrader, said, "Around a million barrels of oil a day is likely to disappear from global oil markets if the USA sanctions on Iran bite".
Source U.S. Energy Information Administration Short Term Energy Outlook May 2018
With renewed US sanctions looming against OPEC-member Iran and oil demand strong, analysts said crude markets will likely remain tight for much of the year.
"In 2012, the reduction in Iranian crude production and exports were around 1 MMBPD", Wittner said, Reuters reported.
"The API inventory data in the US fits with. a topping pattern - or at least a decent pause - for oil prices at the moment", said Greg McKenna, chief market strategist at futures brokerage AxiTrader.
OPEC's success with the oil production cutting deal has been to a significant extent aided by Venezuela's catastrophically dropping production as the country grapples with foreign exchange shortage, US sanctions, and a devastating economic crisis.
Despite Wednesday's dips and some indicators implying the financial oil has overshot physical oil, overall crude market conditions have tightened since 2017 when the Organization of the Petroleum Exporting Countries (OPEC) started to withhold supplies to push up oil prices.
On Monday, however, markets were held in check by news of an increase in USA drilling for oil.