Oil prices have rallied in international trading this week with Brent crude opening at nearly $63 a barrel in Asian trading Thursday morning.
Overall, oil prices have risen by about 15 per cent in the past two weeks, partly in response to speculation that the Organization of the Petroleum Exporting Countries (OPEC) may introduce production cuts in the weeks to come and a US report on domestic supplies.
On Wednesday, the US benchmark West Texas crude jumped five per cent on a government report that domestic stockpiles had increased by the least amount in nearly four months.
The US Department of Energy said that US stockpiles had risen by only 1.3 million barrels, falling short of market expectations. There is also expectation that US oil production will decrease ahead of the summer travel season.
The official US report also comes as the International Energy Agency (IEA) predicts that demand for oil will increase in 2015.
The rise in oil prices this week continues a trend fueled by the launch of a Saudi-led Arab military campaign in Yemen.
Oil markets had feared production disruption in the region; instability in Libya’s oil industry as the country reels from a civil war has also contributed to rising oil prices.
But if Tehran and Washington are able to agree to a final nuclear deal in June and economic sanctions are removed, markets should expect an inflow of Iranian oil this summer.
Iran is looking to use the removing of sanctions – which had hit hard its oil industry – to boost its wavering economy.
Earlier this week, Iranian Oil Minister Bijan Namdar Zangeneh called on fellow OPEC members to agree to a five per cent production cut ahead of a meeting of the cartel in June.
In March, OPEC raised output from 30 to 31 million barrels a day.
Zanganeh wants to see an overall cartel quota of about 28.5 million barrels a day.
Saudi Arabia says it sees no reason to cut OPEC production even though oil supply is currently more than demand.
The stagnation and recession in many Eurozone countries – and the drawbacks in China’s economy – has forced industry and governments to scale back imports.
There are also fears that rising interest rates in the US could pose greater risks for the global financial system if not done smoothly.
If the US Federal Reserve decides to raise interest rates – following the end of its stimulus program in late 2014 – the value of the dollar against other currencies is likely to rise.
In the meantime, the IEA cites OPEC’s increased quota, Iraq’s record production output, and the expected return of Iran to oil markets as factors which would likely delay price stability until the end of the year.
Related: Who started the oil glut?
The BRICS POST with inputs from Agencies