Oil prices slipped on Friday, but remained near 3½ year highs on Friday as renewed U.S. sanctions on Iran tightened the outlook for Middle East supply at a time when global crude production is only just keeping pace with rising demand.
The United States is reintroducing sanctions against Iran, which pumps about 4 percent of the world's oil, after abandoning a deal reached in late 2015 that limited Tehran's nuclear ambitions in exchange for the removal of U.S. and European sanctions.
The global oil market is finely balanced, with top exporter Saudi Arabia and No.1 producer Russia having led efforts to curb oil supply to prop up prices.
"It's the same witches brew of bullish stuff: Iran, Venezuela, the lack of alacrity by Saudi Arabia to bring more oil onto the market," said John Kilduff, partner at Again Capital in New York.
"Prices may strengthen later in the day as traders shore up their positions, he said. "It's definitely not an environment to go home short over the weekend."
U.S. light crude ended Friday's session down 66 cents at $70.70, having touched a 3½ year high of $71.89 on Thursday.
Benchmark Brent crude oil fell toward Friday's session low of $77.04 a barrel heading into the close of trading. On Thursday Brent hit $78, its highest since November 2014.
For the week, Brent was on track to rise roughly 3-percent, while and U.S. crude posted a 1.4-percent gain.
Many analysts expect oil prices to rise as Iran's exports fall.
Rainer Seele, chief executive of Austrian oil and gas company OMV, told German daily Handelsblatt that he expects prices to rise as the United States moves to reimpose sanctions.
"It is not yet clear which concrete sanctions the U.S. will impose. But I expect the price of North Sea Brent to be closer to $80 than $70 a barrel," Seele said in an interview.
U.S. investment bank Jefferies said in a note that it expects Iranian crude oil exports to start falling in the next few months.
"We expect that around October Iranian exports will be down by 500,000 barrels per day (bpd) and eventually fall by 1 million bpd," the bank said.
There are signs, however, that other members of the Organization of the Petroleum Exporting Countries (OPEC) will raise output to counter the Iran disruption.
Jefferies said that OPEC has the capacity "to replace the Iranian losses" but added: Even if physical supply is held constant ... the market will still be faced with a precariously low level of spare capacity."
Outside OPEC, soaring U.S. crude oil production could help to fill Iran's supply gap. U.S. oil output reached another record high last week, hitting 10.7 million bpd.
That is up 27 percent since mid-2016 and means that U.S. output is creeping ever closer to that of top producer Russia, which pumps about 11 million bpd.
The weekly rig count from GE's Baker Hughes division showed U.S. drillers added 10 rigs to a total of 844. The rig count is a forward-looking indicator on production.