Oil markets edged back from highs last reached in late 2014 as ample supplies weighed, but prices were underpinned by worries over military escalation in Syria and trade tensions between the United States and China.
Brent crude futures were at $71.70 a barrel at 0902 GMT on Thursday, down 36 cents from their last close. U.S. WTI crude futures CLc1 were down 20 cents at $66.62.
Both Brent and WTI on Wednesday hit their highest since late 2014 at $73.09 and $67.45 a barrel respectively after Saudi Arabia said it intercepted missiles over Riyadh and U.S. President Donald Trump warned Russia of imminent military action in Syria.
Analysts said the resulting geopolitical fears had pushed fundamentals aside.
“It appears that immediate supply/demand considerations stay in the background and geopolitics are in focus,” said PVM Oil Associates analyst Tamas Varga. “If fundamentals were the driving force, we would not have seen the continuation of this week’s rally.”
Continuing concern over a prolonged trade dispute between the United States and China also kept markets on edge.
China hit out at the United States on Thursday, saying that threats from both sides to impose new import tariffs were provoked by America and that Beijing was prepared to escalate the spat if Washington did not back down.
The Chinese Commerce Ministry also said there had been no bilateral negotiations with the United States on the trade frictions.
Despite this, supplies remain ample and analysts said this would weigh on prices eventually.
Barclays said that geopolitical events could keep Brent prices elevated above $70 in April and May, with a high likelihood of a downward correction in the second half of the year.
U.S. crude oil inventories rose by 3.3 million barrels to 428.64 million barrels, while U.S. crude production last week hit a record 10.53 million barrels per day (bpd).
The United States now produces more crude than top exporter Saudi Arabia. Only Russia, at nearly 11 million bpd, pumps more.
Demand, particularly in top oil importer China, was also shaky because of high stocks and refinery maintenance.
“What ultimately counts are the genuine outages on the supply side. And if these turn out not to be as substantial and lasting as feared, a more sober assessment will quickly ensue: the downside potential for Brent is very high,” said Commerzbank analyst Carsten Fritsch.