By Sarah McFarlane and Alison Sider
Brent crude prices pared gains to settle near unchanged after hitting $80 a barrel Thursday, as Washington's decision to reinstate sanctions on Iran continued to fuel a rally that has pushed the market to 3 1/2 -year highs.
Brent crude, the global oil benchmark, settled up 2 cents at $79.30 a barrel on London's ICE Futures exchange, having earlier moved past $80, its highest level since November 2014. On the New York Mercantile Exchange, West Texas Intermediate futures settled unchanged at $71.49 a barrel after earlier climbing above $72 a barrel.
"We might have seen a little profit-taking," said Eugene McGillian, research manager at Tradition Energy, adding that the strong dollar may have dented oil's rise. Oil and the dollar often move in opposite directions, since a stronger dollar makes oil more expensive for buyers using foreign currencies.
But with oil prices up more than 18% this year, some are starting to question whether demand will take a hit. Michael Hewson, chief market analyst at CMC Markets, said he's expecting oil prices to remain in a range of $72 to $85 a barrel, and "wouldn't rule out" $90 Brent this year.
"The only reason that will stop it from going higher is demand destruction, ultimately people will use it less and consumption will go down," he said.
Thursday's earlier gains came as European companies pull back from Iran. European countries had said they would stand by the 2015 international nuclear agreement that saw sanctions against Iran eased in return for Tehran curbing its nuclear program. Washington dropped out of that pact last week, sending oil sharply higher on the belief that Iranian supply will be curbed, when crude inventories are already falling.
If European companies pull out of investments, Iran will question the point of sticking by the agreement, said Amrita Sen, analyst at consultancy Energy Aspects.
"There's a minimum of 400,000 barrels per day of Iranian exports at risk, " Ms. Sen added.
The U.S. has said it is possible there will be secondary sanctions imposed on European companies who continue to deal with Iran.
French energy major Total SA said Wednesday that it would withdraw from a major gas project in Iran before November if it wasn't granted a waiver by the U.S. Total had signed a $1 billion deal to develop Iran's South Pars field.
"As soon as the U.S. put back secondary sanctions, there's no opportunity for us," Total Chief Executive Patrick Pouyanne said Thursday.
Any barrels lost from Iran will exacerbate an already tight market -- the International Energy Agency said Wednesday that oil stockpiles in industrialized economies fell to their lowest level in three years and dipped below the five year average level for the first time since 2014.
And investors are losing faith in U.S. producers' ability to replace falling output elsewhere in the world. Pipeline congestion in the most prolific U.S. oil field is becoming a bottleneck that could slow output, which could end up boosting global oil prices, analysts at Tudor Pickering Holt said.
"We do not expect that U.S. shale producers will be able to fill the volumes lost as Iran sanctions are re-imposed and Venezuelan exports decrease further than they already have," analysts at Height Securities said.
Gasoline futures fell 0.3% to $2.2431 a gallon. Diesel futures rose 0.51% to $2.2808 a gallon.
Timothy Puko contributed to this article.
Write to Sarah McFarlane at [email protected] and Alison Sider at [email protected]