By Stephanie Yang and Christopher Alessi 

Oil prices closed at the highest level in eight weeks on Friday, lifted by declining global supply along with the possibility of fresh Iran sanctions.

Light, sweet crude for May delivery rose $1.58, or 2.5%, to $65.88 a barrel on the New York Mercantile Exchange, the highest settle value since Jan. 26. Brent, the global benchmark, gained $1.54, or 2.2%, to $70.45 a barrel.

Uncertainty over the state of the Iran nuclear deal has increased in recent weeks, supporting oil prices as market participants gauge whether President Donald Trump will scrap the 2015 agreement and reimpose economic sanctions, impacting the country's oil output.

Those concerns escalated on Thursday after Mr. Trump named John Bolton as his new national security adviser, as the former ambassador is expected to take tougher stances against Iran and North Korea.

"There's some raised geopolitical risk premium from the naming of John Bolton as the national security adviser," said John Kilduff, founding partner at Again Capital. "It doesn't look good for the Iran nuclear deal to maintain itself."

Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, also reiterated its commitment to lowering a global crude surplus on Thursday. Energy minister Khalid al-Falih told Reuters that members of OPEC would need to continue to coordinate with non-OPEC producers on supply cuts next year.

"That is somewhat supportive here that the Saudis are doubling down on trying to reduce the oversupply even more," Mr. Kilduff said. "I think they're going to keep talking this way until they succeed in their objective, or not."

Thomas Pugh, commodities economist at Capital Economics, cautioned that Mr. Falih could likely be referring to a gradual "exit strategy" from the production curb agreement.

"Cooperation doesn't necessarily mean continuing cuts in the same way," Mr. Pugh said.

Meanwhile, declining U.S. supplies have helped boost prices. On Wednesday, the U.S. Energy Information Administration reported a surprise drop in crude inventories of 2.6 million barrels last week.

Growing global demand for oil amid economic expansion has helped offset concerns over record high shale production in the U.S.

"All major economies remain in an expansion mode. For now, the global recovery in oil demand has been broad-based across regions and economic sectors, and also unyielding to rising prices," analysts at Bank of America Merrill Lynch wrote in a Thursday note.

However, analysts said strong demand remains at risk given fears of a trade war, in the wake of fresh White House tariffs on China. Oil prices had their worst day in two weeks on Thursday in response to the announcement.

If global trade "goes into reverse, it could really dent rosy demand projections" for oil, Mr. Pugh said.

Market observers are awaiting weekly data from Baker Hughes on Friday on the number of rigs drilling for oil in the U.S., a measure of activity in the sector.

Gasoline futures rose 1.2% to $2.0336 a gallon and diesel futures rose 1.3% to $2.0184 a gallon

Write to Stephanie Yang at stephanie.yang@wsj.com and Christopher Alessi at christopher.alessi@wsj.com

(END) Dow Jones Newswires

March 23, 2018 15:47 ET (19:47 GMT)

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