Oil extends gains on robust U.S. demand, China optimism

© Reuters. FILE PHOTO: The Homer Ferrington gas drilling rig, operated by Noble Energy and drilling in an offshore block on concession from the Cypriot government, is seen during President Demetris Christofias' visit in the east Mediterranean, Nicosia November 21, 2

By Florence Tan

SINGAPORE (Reuters) - Oil prices extended gains on Thursday, underpinned by robust demand in the world's top consumer United States while demand is expected to rebound in China as COVID-19 curbs across major cities are relaxed.

Brent crude futures for August rose 50 cents, or 0.4%, to $124.08 a barrel by 0153 GMT, while U.S. West Texas Intermediate crude for July was at $122.49 a barrel, up 38 cents, or 0.3%.

Both benchmarks closed Wednesday at their highest since March 8, matching levels seen in 2008.

The United States posted a record fall in strategic crude reserves even as commercial stocks rose last week, data from the Energy Information Administration (EIA) showed on Wednesday.

U.S. gasoline stocks unexpectedly dropped, indicating resilience in demand for the motor fuel during peak summer despite sky-high pump prices.

"It's hard to see significant downside in the coming months, with the gasoline market likely to only tighten further as we move deeper into driving season," ING's head of commodities research Warren Patterson said.

EIA's data showed that apparent demand for all oil products in the United States rose to 19.5 million barrels per day (bpd) while gasoline demand rose to 8.98 million bpd, ANZ analysts said in a note.

Investors will scrutinize May trade data from China, due later on Thursday, for demand cues in the world's No. 2 oil consumer. Shanghai, the country's biggest business hub, emerged on June 1 from a two-month lockdown.

"China's reopening continued to boost the demand optimism," CMC Markets analyst Tina Teng said in a note.

"The oil price could be heading to the peak of March at above $130 on a very tight supply market."

Efforts by OPEC+ oil producers to boost output are "not encouraging", UAE energy minister Suhail al-Mazrouei said on Wednesday, noting the group was currently 2.6 million bpd short of its target.

Last week, the group agreed to accelerate production increase to tame runaway fuel prices and slow inflation. But the move will leave producers with very little spare capacity, and almost no room to compensate for a major supply outage.