LONDON - Oil eased on Wednesday, but held in sight of three-year highs reached the previous day, as rising U.S. fuel inventories and production weighed on an otherwise bullish market.
Overall, the environment for oil is bullish. Supplier cutbacks, steady demand growth, geopolitical tensions and a favourable structure in the futures market have attracted record investment in oil this year.
A rise in U.S. government borrowing costs to their highest since 2013 this week has tempered some investor appetite for risk, but analysts said they believed Brent crude may have another attempt at marking new 2018 highs above $75 a barrel.
Weekly data on Tuesday that showed a rise in U.S. crude inventories also subdued the oil price somewhat.
Brent crude oil futures were down 14 cents at $73.72 a barrel at 1128 GMT, some 2 percent below the November 2014 high of $75.47 reached on Tuesday.
U.S. West Texas Intermediate (WTI) futures were down 4 cents at $67.66 a barrel.
"There's a good chance we try again to break $75 again. We still have all the different soundbites on Iran and the May 12 deadline is coming up," Petromatrix strategist Olivier Jakob said, referring to an upcoming date by which the United States has said it will withdraw from a nuclear deal with Iran if the other signatories to the deal do not meet certain conditions.
The prospect of fresh sanctions on Tehran and disruption to the country's oil flows has helped push the oil price to its highest since late 2014 this month.
"Market sentiment is turning increasingly bullish towards the commodity," said Lukman Otunuga, research analyst at futures brokerage FXTM.
Despite this, Otunga said "the sustainability of the rally is a concern" as it was fuelled largely by political risk in the Middle East.
Money managers hold record positions in Brent crude futures and options, lured in by the hefty premium of the front-month June contract over subsequent months that makes it profitable to invest in crude over the longer term.
Because of the tighter market, the forward curve for Brent is now above $70 per barrel until the end of 2018, and prices are above $60 per barrel through 2020.
But the rise in Treasury yields above 3 percent has driven the value of the U.S. dollar to three-month highs, which may pose a threat to a more pronounced rally in the crude price.
Although the oil price and the dollar have moved in tandem for the last few weeks, the two generally tend to trade in the opposite direction, as a stronger dollar encourages non-U.S. investors to sell oil and crude-importing countries to curtail their purchases.