Oil prices climbed on Monday, extending pre-weekend gains to hit multi-year highs as global supply remained tight amid solid fuel demand in the United States and elsewhere in the world as economies pick up from coronavirus pandemic-induced slumps.
U.S. West Texas Intermediate (WTI) crude futures rose 62 cents, or 0.7%, to $84.38 a barrel at 0646 GMT, after gaining 1.5% on Friday. They touched their highest since October 2014 - $84.76 - earlier in the session.
Brent crude futures increased 56 cents, or 0.7%, to $86.09 a barrel, following on from last Friday's 1.1% gain. The contract earlier hit its highest since October 2018 of $86.43.
"With firm fuel demand in the United States amid tight supply, oil market's tone stayed fairly strong, which prompted some speculators to unwind short positions," said Tetsu Emori, CEO of Emori Fund Management Inc.
After more than a year of depressed fuel demand, gasoline and distillate consumption is back in line with five-year averages in the United States, the world's largest fuel consumer.
Meanwhile, U.S. energy firms last week cut oil and natural gas rigs for the first time in seven weeks even as oil prices rose, energy services firm Baker Hughes Co said in its closely followed report on Friday.
Money managers raised their net long U.S. crude futures and options positions in the week to October 19, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday, underlining strong market sentiment.
Oil prices have also been bolstered by worries about coal and gas shortages in China, India and Europe, which spurred fuel-switching to diesel and fuel oil for power.
But analysts warn there may be some corrections in the coming weeks as the sharp rise in crude prices has led to a growing sense of caution.
"WTI's percentage gain so far this year has reached the levels in 2007 and 2009 when we also saw a steep rally, suggesting it's a bit overdone," Emori said.
WTI futures contracts are currently in steep backwardation, meaning later-dated contracts trade are at a lower price than the current contract. Normally later months trade at a higher price, reflecting the costs of storing oil.
"Bullish sentiment continues to support oil prices as global supply remains tight, but immediate gains for the WTI's nearest-term contract may be limited given steepening backwardation," said Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd.