LONDON- Oil edged lower on Wednesday, but held in sight of three-year highs reached the previous day, as rising U.S. fuel inventories and production weighed on an otherwise bullish market.
Supplier cutbacks, steady demand growth, geopolitical tensions and a favourable structure in the futures market have attracted record investment in oil this year.
A rise in U.S. government borrowing costs to their highest since 2013 this week has tempered some investor appetite for risk, but analysts said Brent crude may have another attempt at marking new 2018 peaks above $75 a barrel.
Weekly government data due on Wednesday is expected to show a rise in U.S. crude inventories, but a drop in stocks of refined products.
Brent crude futures were down 26 cents at $73.60 by 1345 GMT, some 2 percent below the November 2014 high of $75.47 reached on Tuesday. U.S. crude futures were up 4 cents at $67.74 a barrel.
"There's a good chance we try again to break $75. We still have all the different soundbites on Iran and the May 12 deadline is coming up," Petromatrix strategist Olivier Jakob said, referring to the date by which the United States has said it will withdraw from a nuclear deal with Iran if the other signatories do not meet certain conditions.
The prospect of fresh sanctions on Tehran and disruption to the country's oil flows helped push oil higher this month.
Money managers hold record positions in Brent crude futures and options, lured by the hefty premium of the front-month June contract over subsequent months that makes it profitable to invest in crude over the longer term.
"The prospect of a downside correction in prices is lost on the speculative fraternity. In fact, financial players have rarely felt more optimistic. Bets on rising crude prices are close to a near-record high," PVM Oil Associates strategist Stephen Brennock said.
"However, given the already vast holdings of long positions in oil, there are doubts over the scope for further inflows."
The forward curve for Brent 0#LCO: is now above $70 until the end of 2018, and prices are above $60 through 2020.
But the rise in Treasury yields above 3 percent has driven the U.S. dollar .DXY to three-month highs, which may pose a threat to a more pronounced rally in crude.
Although oil and the dollar have moved in tandem for the last few weeks, the two tend to trade in the opposite direction, as a stronger dollar encourages non-U.S. investors to sell oil and crude-importing countries to curtail their purchases.
(Additional reporting by Henning Gloystein in SINGAPORE; Editing by Dale Hudson) ((email@example.com; +442075423424; Reuters Messaging: firstname.lastname@example.org; Twitter: https://twitter.com/a_coops1))