Crude oil prices at 2.5-year high

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Oil prices posted their strongest start to a year since 2014 on Tuesday, with crude rising to mid-2015 highs amid large anti-government rallies in Iran and ongoing supply cuts led by OPEC and Russian Federation.

He added: "Yet even with these factors offering a boost, prices will likely remain range-bound, and possibly volatile, on a combination of increasing United States shale production, reduced but still significant global supplies, and potential non-compliance with agreed production cuts - especially if demand growth is more tepid".

"Part of this rally has been a real rise in demand last year and demand prospects for this year", said John Kilduff, managing partner at Again Capital. US refiners boosted operating rates for a third straight week, contributing to the decline in stored oil supplies. While product demand is up from a year earlier, robust stockpiles and a coldsnap in the USA could put a damper on demand.

The Organization of the Petroleum Exporting Countries - of which Iran is the third-largest member - and 10 producers outside the cartel, including Russian Federation, agreed in November to extend a deal to cut crude output by almost 2% through the end of this year.

The oil price rally at the end of 2017 was primarily supported by multiple but temporary supply disruptions, while the latest leg up has been driven by protests across Iran, Ole Hansen, Head of Commodity Strategy at Saxo Bank, said on Tuesday. On Friday there was no new major outbreak of violence in the country, relieving some of the tension from the market.

Brent crude, the global benchmark, was down 1 cent at $67.83 a barrel at 1318 GMT. That was just short of the May 2015 high at $62.58.

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The market's move into backwardation - where spot prices trade higher than contracts for delivery in later months - makes holding long financial bets in oil more attractive as investors can earn a yield each month by rolling positions forward. USA crude rose 15 cents to $61.78 and also touched the highest since May 2015.

Calendar spreads for all months in 2018 have tightened significantly over the last six months suggesting traders see the market moving towards a sustained period of undersupply.

U.S. commercial crude stockpiles fell by 7.4 million barrels in the week through December 29, the U.S. Energy Information Administration said in its weekly report on Thursday.

Oil broke above $62 in NY as the USA supply picture appeared tighter, with crude inventories at Cushing, Oklahoma sliding below their five-year average.

OPEC's cuts are helping reduce global inventories, even as production continues to rise in the United States.

With Iranian production unaffected by unrest and USA output likely to pass 10 million barrels per day (bpd), a level reached only by Saudi Arabia and Russian Federation, doubts are emerging whether the bull run can last. Supported by the global inventory drawdown and geopolitical woes, however, oil prices rose steadily in the fourth quarter of 2017 to end the year at above $60 per barrel WTI and $66 per barrel Brent.