Oil prices extended gains on Thursday on the prospect of tighter supplies after Washington imposed more sanctions to curb Iran's oil trade and as some OPEC producers pledged more output cuts to offset pumping above agreed quotas.

Brent crude futures rose 55 cents, or 0.8%, to $66.40 a barrel by 0321 GMT, and U.S. West Texas Intermediate crude futures were at $63.13 a barrel, up 66 cents, or 1.1%.

Both benchmarks closed 2% higher on Wednesday at their highest since April 3 and were on track for their first weekly gain in three weeks. Thursday is the last settlement day in the week ahead of the Good Friday and Easter holidays.

"I think there are a few factors behind this rally – short covering, a weaker dollar making crude cheaper to buy, and U.S. pressure on Iran," said IG market analyst Tony Sycamore.

He added that WTI could climb back to $65-$67 a barrel but would likely struggle to make further gains.

"If we assume that U.S. growth is going to be stagnant at best for the next two quarters and China's GDP is going to slow to the 3%-4% range, that's not good for crude," Sycamore said.

President Donald Trump's administration on Wednesday imposed new sanctions targeting Iranian oil exports, including on China-based "teapot" refineries, increasing pressure on Tehran amid talk of the country's growing nuclear program.

Adding to supply concerns, the Organization of the Petroleum Exporting Countries said Wednesday it had accepted an updated plan for Iraq, Kazakhstan and others to make further production cuts to offset pumping above quota.

"(These factors) can certainly affect sentiment - one would argue that Iranian production is (not) significant and OPEC quotas are being violated more often than is observed, but both factors are contributing to a more optimistic tone," said Michael McCarthy, CEO of online investment platform Moomoo.

A big drawdown in U.S. gasoline and distillate stocks and a smaller-than-expected rise in weekly crude inventories also buoyed the market, he said.

"Much of the recent selling pressure in global crude markets has been tied to fears of an imminent U.S. oil glut, but the decline in refining suggests that supply bottlenecks may be emerging," McCarthy said.

However, OPEC, the International Energy Agency and several banks, including Goldman Sachs and JP Morgan, cut their forecasts for oil price and demand growth this week as U.S. tariffs and retaliation from other countries rattled global trade. The World Trade Organization said it expects merchandise trade to fall by 0.2% this year, down from its October forecast for a 3.0% expansion. (Newsmaker23)

Source: Reuters