World oil prices have surged by more than 70 percent over the a year ago as demand has risen sharply but production has been restricted by the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, and other key producers including Russian Federation.
USA crude futures climbed 26 cents, or 0.37%, to $70.96 a barrel on the New York Mercantile Exchange. By 0800 GMT, Brent was up 20 cents at $78.43.
The Vienna-headquartered organization estimated on Monday that oil demand will increase by around 1.65 million barrels per day to reach 98.84 million bpd of total global oil consumption for 2018, according to its monthly report.
The OPEC cuts and looming sanctions come amid strong demand.
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The most recent EIA study, included in the agency's short-term energy outlook, showed that global production of oil outside Iran averaged 92.4 million barrels per day from February to March, compared to 91.0 million bpd from 2015 to 2017.
"The oil market was underpinned in April by renewed geopolitical issues, tightening product inventories and robust global demand", OPEC said in its report.
"Although oil could venture higher in the near term, robust production from U.S. shale remains a threat to higher oil prices", he said. "We still think that OPEC's forecast that the market will be in a large deficit this year is too ambitious", the note said.
LONDON, May 15 (Reuters) - Oil prices hit a 3-1/2-year high on Tuesday, supported by tight supply and planned US sanctions against Iran that are likely to restrict crude oil exports from one of the biggest producers in the Middle East.
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Prices for oil traded in London jumped to multi-year highs above $78 a barrel on Monday after U.S. President Donald Trump announced last week that Washington would reimpose the sanctions on Iran.
While the rising production figures are bearish clouds, "we're continuing to see the general momentum being brought forth, which has continued to point higher", said Ton Headrick, an analyst at CHS Hedging.
The chief executive of Sun Global Investment Mihir Kapadia said: "Oil markets have been cautious as the current impact of the U.S. sanctions on Iran remain unclear, with European and Asian allies continuing to resist Trump's call to pull out of the JCPOA".
Capital Economics analysts said OPEC is well-positioned to offset any fall in output from Iran caused by the re-imposition of sanctions on the country.
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Prices received a boost last week following President Donald Trump's announcement on May 8 that the United States would withdraw from the Iranian nuclear deal. With an Iranian diplomatic delegation due to Beijing, Moscow and Brussels this week, investors would be closely watching for any further geopolitical headlines, Mr. Hansen added.