LONDON - Oil cut earlier losses and rose towards its highest level this year on Wednesday, after a drop in U.S. crude inventories and as the prospect of the loss of Iranian supply added to concerns over the delicate balance between consumption and production.
Brent crude futures were last up 14 cents on the day at $79.20 a barrel by 1123 GMT, having touched a session peak of $79.66, the highest since late May, when the price broke above $80.
U.S. crude futures rose 61 cents to $69.86 a barrel.
"We think oil market fundamentals are increasingly supportive of crude prices, at least at current levels," said Gordon Gray, HSBC's global head of oil and gas equity research.
"While we aren't explicitly forecasting Brent to rise to $100 a barrel, we see real risks of this happening. The fact that much higher supply is already needed from the likes of Saudi Arabia - and the low levels of spare capacity remaining - leave the global system highly vulnerable to any further significant outage."
U.S. crude stocks fell by 8.6 million barrels in the week to Sept. 7 to 395.9 million, the American Petroleum Institute (API) said on Tuesday, while the U.S. Energy Information Administration (EIA) cut its forecast for U.S. crude output growth in 2019.
Outside the United States, traders have been focusing on the impact of U.S. sanctions against Iran that will target oil exports from November.
"Iran is increasingly becoming the preoccupation of the crude market. The last couple of weeks have seen the expected squeeze on Iranian crude flows taking shape, with overall outflows down markedly," consultant JBC Energy said.
Russian energy minister Alexander Novak on Wednesday warned of the impact of U.S. sanctions against Iran.
"This is a huge uncertainty on the market – how countries, which buy almost 2 million barrels per day of Iranian oil, will act. The situation should be closely watched, the right decisions should be taken," he said.
Novak said global oil markets were "fragile" due to geopolitical risks and supply disruptions.
The Organization of the Petroleum Exporting Countries cut its forecast for oil demand growth in 2019 in its monthly report and said rising challenges in some emerging and developing countries could negatively impact global economic growth.
OPEC said it expects demand growth of 1.41 million bpd in 2019, a 20,000-bpd downgrade from its previous forecast.
Oil traders were also watching the progress of category 4 Hurricane Florence that is expected to make landfall by Friday.
Crude output will not be affected by the "monster" storm, but the evacuation of more than a million residents, as well as businesses, has prompted a near-term spike in fuel demand.