Oil prices on track for weekly gain amid high U.S. demand

© Reuters. An aerial view shows oil stockpiling facilities in unidentified location, South Korea, in this handout picture taken on July 14, 2005. Picture taken on July 14, 2005. Korea National Oil Corp/Handout via REUTERS/File Photo

By Bozorgmehr Sharafedin

LONDON (Reuters) - Oil rose on Friday and was on track for another weekly gain supported by solid fuel demand in the United States, although fresh COVID-19 alerts in Shanghai and Beijing curbed gains.

Brent crude was up 40 cents, or 0.3%, at $123.47 a barrel at 0934 GMT while U.S. West Texas Intermediate crude rose 30 cents, or 0.3%, to $121.81 a barrel.

With prices overall rallying in the past two months, Brent was on track for a fourth consecutive weekly gain and WTI was set for a seventh straight weekly increase.

"The summer driving season in the U.S. is seeing record surges in gasoline and diesel consumption," analysts at Fitch Solutions said.

Peak summer fuel demand in the United States has pushed gasoline to nearly $5 a gallon.

Oil prices also found support from fears of a potential disruption in supply in Europe.

Norway's oil output could be reduced if workers go on strike on Sunday, the Norwegian Oil and Gas Association (NOG) said.

Some 845 of roughly 7,500 employees on offshore platforms plan to strike from June 12 if annual pay negotiations with employers fail.

The prospect of reaching a nuclear deal with Iran and the lifting of U.S. sanctions on the Iranian energy sector also seemed to be receding, supporting the oil rally.

Iran on Thursday dealt a near-fatal blow to chances of reviving the nuclear deal as it began removing essentially all the International Atomic Energy Agency monitoring equipment installed under the deal, IAEA chief Rafael Grossi said.

"A strategic détente between the United States and Iran would allow 1 million barrels per day of Iranian crude oil exports to return to global markets and would therefore provide some relief to global oil prices," analysts at BCA Research said.

Oil prices fell more than $1 earlier in the session amid fresh lockdowns in China.

Shanghai and Beijing went back on COVID alert on Thursday. Parts of Shanghai imposed new lockdown restrictions and the city announced a round of mass testing for millions of residents.

"Oil has continued retreating in Asia, driven by China slowdown fears after widened COVID mass testing was announced for Shanghai this weekend," said Jeffrey Halley, a senior market analyst at OANDA.

China's crude oil imports in May were up nearly 12% from a year earlier, when they were low.

But refiners were still battling high inventories, with COVID-19 lockdowns and a slowing economy weighing on fuel demand last month.

"This does not indicate that oil demand is picking up. Instead, China is likely to have acted opportunistically, buying crude oil from Russia at a significantly lower price than the global market level in order to replenish its stocks," Commerzbank (ETR:CBKG) analyst Carsten Fritsch said.

Investors were also cautious ahead of U.S. inflation data later in the day, which could guide the Federal Reserve's policy tightening path.