Prices had closed at a fresh three-year high Thursday, on the back of declining USA crude stockpiles and perceived geopolitical risk to supply because of antigovernment protests in Iran.
Crude oil futures traded higher by one per cent at Rs 3,942 per barrel at the futures market as speculators widened their bets owing to positive cues from global market.
Brent crude futures - the global benchmark for oil prices - were at United States dollars 68.13 a barrel, up 0.4 percent, after hitting a May-2015 high of USD 68.16 shortly before.
Oil market observers will be looking ahead to an EIA report January 9 outlining the agency's outlook for 2019 and the implications for USA crude production. In December 2016 was a meeting of oil producers outside the OPEC.
Analysts at JBC Energy say the biggest short-term risk is if the Iranian government's response to the protests spurs further sanctions from the United States, with President Donald Trump said to be unlikely to certify the landmark nuclear deal with Iran later this month.
"There's been a one-way, very steep and uninterrupted rally off the last minor low in mid-December near $56, so it won't be surprising to see a pause here", said Ric Spooner, a Sydney-based analyst at CMC Markets.
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OPEC as well as non-OPEC members including Russian Federation, initiated an agreement to cut supplies in 2016, with the goal of lifting prices by diminishing the two-year excess of supply. Compliance has been high, as producers have made a decision to extend the supply pact until the end of 2018.
The price of Dubai crude, the benchmark used in Southeast Asia, averaged $53 per barrel in 2017, up from $41.40 the year before.
Traders are looking to see if Russian Federation - which has faced opposition to the cuts from domestic oil companies - and Opec kingpin Saudi Arabia can agree an exit strategy that will stop a flood of barrels returning to the market. The market will be driven by a strong demand increase of 1.3 million bpd to 99.1 million, according to IEA forecasts, which take note of the economic upswing in both developed and emerging economies.
OPEC led cuts are assisting to reduce global inventories. Domestic demand was also higher: US product supplied for crude oil and petroleum products was at the highest level since 2007.
"There is enough support for prices with the cold in the US and the geopolitical factor", said Olivier Jakob, oil analyst. The cartel expects that the crude market to balance this summer and run at a small deficit in the second half of 2018. Profit-taking and technically overbought conditions may be behind the early weakness.