Brent crude rose above $70 a barrel for the first time since December 2014 on Monday and supply and demand fundamentals worked in tandem to support oil prices at the beginning of the week.
In Asian trade, the Brent crude global benchmark rose by 16 US cents from Friday's close to hit a three-year peak of $70.03 a barrel, before falling back to trade 0.1% lower at $69.80. The US benchmark Nymex West Texas Intermediate rose 0.05% to $64.33 a barrel.
Cold weather demand
On the demand side of the price equation, the current cold snap in the US has seen the countries refineries crank up production of distilates that include heating oil used in many US homes.
This resulted in a larger-than-expected drawdown of 4.95 million barrels of crude from US stockpiles last week. At 419.5 million barrels, US crude inventories now stand at their lowest level since August 2015.
On the supply side, the extension of the OPEC-led production curbs helped provide a floor for prices in November, when the cartel and a handful of other producers, including Russia, agreed to keep their supply cuts going through this year.
More particular to the Brent oil price, however, has been the recent shutdown of a pipeline in the North Sea Forties oil field operated by INEOS after the discovery of a crack.
"The pipeline carries around 450Mbbls/d of crude oil, and it is expected that repair work will take several weeks, which should remain supportive for Brent in the short term," said ING commodities strategist Hamza Khan.
Aside from market fundamentals, other factors have helped support crude prices in recent weeks - including tensions between Saudi Arabia and Iran, and possibility of new US-led sanctions on the latter, not to mention the ever-present tensions between the US and North Korea.
Some believe geopolitical risk will be the major driver of oil prices this year.
"Developments related to Iran were behind the latest run-up in oil prices," said Ole Hansen, head of commodity strategy at Saxo.
"Renewed geopolitical risks are likely to be the key source of support and one which could upset our call for lower prices during the first quarter of 2018," he added.
Lower oil prices?
The higher prices move, however, adds an additional risk for oil prices as US shale producers ramp up production and push further supply onto the market.
US crude oil production averaged 9.3 million barrels per day in 2017 and as prices rise the higher-cost producers begin to realise profits and raise production levels.
In its Short Term Energy Outlook last week, the US Energy Information Administration revised its 2018 forecasts higher to 10.3 million barrels per day from a previous 10 million.
Indeed, the latest data from Baker Hughes showed the US rig count increased by 10 last week to 752 – the biggest weekly increase in a year and a half.
"Given the current strength in prices, it is no surprise that we are seeing a pickup in rig activity," said Khan at ING.