Oil gains as market juggles risk sentiment with tight supply

© Reuters. FILE PHOTO: A flame burns from a tower at Vankorskoye oil field owned by Rosneft company north of the Russian Siberian city of Krasnoyarsk March 25, 2015. REUTERS/Sergei Karpukhin/File Photo

By Rowena Edwards

LONDON (Reuters) -Oil prices rose in a seesaw session on Tuesday as the market weighed risk sentiment against supply concerns and the prospect of higher demand after relaxation of China's COVID curbs.

Brent crude futures were up $1.19, or 1%, at $120.70 a barrel by 1403 GMT. U.S. West Texas Intermediate (WTI) crude rose by $1.33, or 1.12%, to $119.83.

Both contracts fell by close to $1 a barrel earlier in the session.

The market has gained support from expectations of demand recovery in China as the country relaxes its tough curbs to contain the spread of COVID-19. Beijing and commercial hub Shanghai have been returning to normal in recent days after two months of painful lockdowns.

Further bullish sentiment came from analyst doubts that tight oil supply would be alleviated by last week's OPEC+ decision to bring forward oil production increases.

The quota increase from OPEC+, which comprises the Organization of the Petroleum Exporting Countries (OPEC) and its allies, is lower than the loss of Russian crude oil resulting from Western sanctions and fails to address a shortage in oil products, analysts said.

"Refining margins globally suggest that petrol and diesel remain in heavy demand, with the logjam in refined products backstopping crude prices," said Jeffrey Halley, a senior Asia Pacific market analyst at OANDA.

Goldman Sachs (NYSE:GS), meanwhile, increased its Brent oil price forecasts by $10 to $135 a barrel for the period between the second half of 2022 and the first half of next year, citing an unresolved structural supply deficit.

Prices would need to rise to the forecast level for supply to normalise by late 2023, the bank's analysts said in a note dated June 6.

Adding to supply concerns, production at Libya’s Sharara oilfield was halted again late on Monday after briefly resuming, said two engineers working there.

Elsewhere, U.S. crude inventories are likely to have fallen last week while gasoline and distillate stockpiles were expected to have risen, a preliminary Reuters poll showed on Monday.

Price rises were limited by risk sentiment, with European equity markets negative, said UBS analyst Giovanni Staunovo.

U.S. State department authorisation for Eni and Repsol (OTC:REPYY) to start shipping Venezuelan crude to Europe from July to replace lost Russian barrels has also weighed on prices in recent days.

Adding to bearish sentiment, Russia is ramping up oil exports from its eastern port of Kozmino by about a fifth, three sources familiar with the matter told Reuters.