Oil hits almost decade-high before Iran throttles the rally

LONDON: Oil prices climbed to almost $120 a barrel on Thursday, their highest in nearly a decade, as sanctions disrupted Russian oil sales but the rally lost some of its fizz on rising prospects for an Iran nuclear deal that could add extra supplies.

Benchmark Brent rose to $119.84 a barrel, the highest since 2012, with additional support coming from data showing U.S. crude stockpiles had hit multi-year lows. By 1416 GMT, it had slipped back to $112.75 a barrel.

Brent has jumped by more than a third in the past month. The contract's six-month spread hit a record high of more than $21 a barrel, indicating very tight supplies.

U.S. crude hit $116.57, its peak since 2008, before retreating to $109.66.

Prices slid in early U.S. trading, after an Iranian reporter tweeted of a breakthrough in talks to revive an Iran nuclear deal that could see Iranian barrels come back into the market.

The head of the International Atomic Energy Agency, which monitors Iranian nuclear activity, visits Iran on Saturday - another move seen as raising prospects for a deal.

Oil-rich Iran says it is ready to step up its crude exports once US sanctions are lifted if talks to revive the 2015 nuclear deal succeed, official media reported.

"We again caution that the deal is still not done and the sums entailed would simply be too small to backfill a major Russian disruption," RBC Capital analyst Helima Croft said.

Oil prices spiked earlier on Thursday after a fresh round of U.S. sanctions on the Russian oil refining sector, raising concerns that oil and gas exports might be next.

Russia, which competes with Saudi Arabia for the title of biggest crude and refined oil products exporter, ships more than 7 million barrels per day (bpd), with about half going to Europe.

But international traders are still wary of becoming entangled in sanctions. At least 10 tankers failed to find buyers on Wednesday, market sources said.

"We expect that Russian oil exports will plunge by 1 million bpd from the indirect impact of sanctions and voluntary actions by companies," said Rystad Energy Chief Executive Jarand Rystad. "Oil prices are likely to continue to climb – potentially beyond $130 per barrel."

Australia's ANZ raised its short-term price target to $125.

The Organization of the Petroleum Exporting Countries, Russia and their allies, a group known as OPEC+, stuck to an existing plan for a gradual output rise of 400,000 bpd a month when they met on Wednesday, snubbing consumer calls for more.

The International Energy Agency voiced disappointment over a decision by top oil producers to keep production steady despite the Ukraine crisis, which has brought a spike in prices and deepened supply fears.

At the same time, the IEA´s executive director Fatih Birol said that despite the "disappointing" outcome of Wednesday´s OPEC+ meeting "we have more than enough stocks to take further action if warranted" in the market as prices soar to decade highs.

On Tuesday, the IEA announced its members would release 60 million barrels of oil from emergency reserves to stabilise the market after Russia´s invasion of Ukraine a week ago, with Washington pledging to contribute half of what amounts to just four percent of the agency´s stocks.