Yesterday, the price of WTI and Brent crude oil reached new three-year highs. The recent surge is attributed to four reasons.

First, this week, the American Petroleum Institute reported a huge withdrawal of 11.2 million barrels of crude oil. Second, the Energy Information Administration (EIA) released data showing a reduction of 4.9 million barrels of oil. In the United States, the number of rigs has also fallen to 742.

Third, oil traders anticipate that Trump will start the process of exiting the Iran Nuclear deal opening a path to new sanctions.

Fourth, around the world, the economies are growing which is increasing the demand for crude oil. Therefore, when you combine increased demand with reducing or stable supplies, higher prices are imminent.

As shown in the chart below, in the past 6 months, the Brent and WTI have been on a rally, creating higher highs and higher lows.

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In the chart below, you can see that the current levels were last seen in 2014.

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The question that all traders should ask themselves is whether the rally will continue or whether the rally has ended.

The current tensions in the Middle East are also weighing in on the price of crude oil. As you recall, Trump decided to move the American embassy from Tel Aviv to Jerusalem, upsetting many Muslim countries like Turkey.

In Iran, there have been protests in all the major cities and towns with most protesters complaining about the cost of living and lack of economic empowerment. These protests are likely to continue.

In Saudi Arabia, the crown prince has gone on a purge, arresting the richest people in the country and introducing significant reforms. All this is good but, some traders have cautioned that it could cause chaos in the world’s biggest oil producer. In addition, there remains a lot of tensions between Saudi Arabia and Yemen. Last year, Saudi Arabia managed to intercept a missile which was headed to Riyadh.

Saudi Arabia is also having problems with Qatar, one of the top oil producers. Remember, last year the country initiated a blockade against Qatar. This threatens to spread to Lebanon and other neighboring countries. It also threatens to bring confrontations between Saudis and Iran.

Any sign of instability in the Middle East region could be significant to the oil markets. This is because instability would potentially disrupt the production, transport and refinery of crude oil.

Global economic growth seems to be supportive of crude oil. Early this month, China, Germany, and the United States have reported growth in manufacturing. In addition, all the major institutions have pointed to growth this year.

All this is bullish for crude oil and it means that it may go up.

However, traders need to be cautious. According to the COT report released last week, the open interest of close to an all-time high at 2.56 million barrels. In addition, the number that represents the number of open long and short positions on NYMEX futures rose to 2.69 million contracts. It has been rising since hitting 2.44 million in December.

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The increase in commitment is bullish for crude oil. However, traders need to be cautious to avoid the risk of being left on the high.