Oil up 1%, supplies seen tighter as China relaxes COVID-19 curbs

© 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 Scott DiSavino

NEW YORK (Reuters) -Oil prices rose about 1% in a seesaw session on Tuesday, with U.S. crude on track for a 13-week high on supply concerns and the prospect of higher demand after China relaxes lockdowns to control the pandemic.

Brent futures rose 79 cents, or 0.7%, to $120.30 a barrel by 11:30 a.m. EDT (1530 GMT). U.S. West Texas Intermediate (WTI) crude rose 71 cents, or 0.6%, to $119.21.

WTI was on track for its highest close since March 8 when it settled at its highest since August 2008. Brent was headed for its highest close since May 31.

Prices drew support from expectations demand would recover in China, where the capital Beijing and commercial hub Shanghai have been returning to normal after two months of lockdowns to control the pandemic. Also, analysts doubted that global oil supplies would rise much following last week's OPEC+ decision to bring forward production increases.

The quota increase from OPEC+, the Organization of the Petroleum Exporting Countries (OPEC) and allied producers including Russia, is lower than the loss of Russian crude resulting from Western sanctions, analysts said, adding it also fails to address a shortage in oil products.

"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) 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, Goldman analysts said in a note dated June 6.

Adding to supply concerns, production at Libya’s Sharara oilfield was halted again late on Monday.

In Norway, more than one in 10 offshore oil and gas workers plan strike action from Sunday if state-brokered wage mediation fails.

Elsewhere, analysts forecast U.S. crude inventories fell last week while gasoline and distillate stockpiles rose, a preliminary Reuters poll showed on Monday. [EIA/S] [API/S]

Later Tuesday, EIA will issue its short term energy outlook, which will project U.S. oil production and demand for 2022 and 2023. [EIA/M]

Oil price rises were limited by risk sentiment after the World Bank slashed its global growth forecast by nearly a third to 2.9% for 2022, warning that Russia's invasion of Ukraine has compounded the damage from the COVID-19 pandemic, and many countries now faced recession.

Also weighing on oil prices was the U.S. State Department authorization for Italian energy company Eni SpA and Spanish energy company Repsol (OTC:REPYY) SA to start shipping Venezuelan crude to Europe from July to replace lost Russian barrels.

Russia is ramping up oil exports from its eastern port of Kozmino by about a fifth.