Oil prices advance on supply concerns despite rise in U.S. inventories

© Reuters. FILE PHOTO: Pump jacks operate at sunset in an oil field in Midland, Texas U.S. August 22, 2018. REUTERS/Nick Oxford

By Scott DiSavino

NEW YORK (Reuters) -Oil prices rose about 1% on Wednesday, and U.S. crude hit a 13-week high despite a rise in domestic crude inventories, as supplies looked likely to tighten with China easing lockdowns and Norwegian oil workers planning to strike.

The U.S. Energy Information Administration (EIA) said crude stockpiles rose by a surprise 2.0 million barrels last week. [EIA/S] [API/S] Analysts polled by Reuters had expected a draw of 1.9 million barrels. The American Petroleum Institute (API), an industry group, had previously reported a 1.8 million barrel crude build.

U.S. gasoline stocks fell by a surprise 0.8 million barrels last week as demand for the fuel rose even with prices near record highs. Analysts polled by Reuters had expected gasoline stocks to rise 1.1 million barrels.

"The gasoline draw is a highlight of the report with a tight market place across the U.S.," said Tony Headrick, energy market analyst at CHS Hedging, noting demand remained strong even with pump prices above $5 in many parts of the country.

Brent futures rose $1.31, or 1.1%, to $121.88 a barrel by 11:07 a.m. EDT (1507 GMT). U.S. West Texas Intermediate (WTI) crude rose $1.18, or 1.0%, to $120.59.

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 settlement since May 31.

"Oil prices are higher, supported by expectation of China easing the COVID restrictions, translating in higher demand and imports this summer," UBS analyst Giovanni Staunovo said.

China's major A-share indexes and Hong Kong's Hang Seng finished trade at two-month closing highs on hopes for a demand recovery on easing of lockdowns to fight the spread of COVID-19. New game-publishing licenses lifted tech firms in Hong Kong.

On the supply side, traders noted several countries could face problems boosting output in the near future.

In Norway, a number of oil workers plan to strike from June 12 over pay, putting some crude output at risk of shutdown.

Efforts by OPEC+ oil producers to boost output are "not encouraging", United Arab Emirates' energy minister Suhail al-Mazrouei said, noting the group was currently 2.6 million barrels per day (bpd) short of its target.

Further pressuring the supply outlook, Iran removed two surveillance cameras of the International Atomic Energy Agency from one of its nuclear facilities, state television reported. That move will probably raise tensions with the United Nations nuclear watchdog, the United States and other countries that Iran is negotiating with over its nuclear program.

Analysts have said a deal on that issue could lift sanctions and add 1 million bpd of Iranian crude to world oil supply.

Europe, which has sanctioned Russia following its invasion of Ukraine, could face energy shortages next winter, warned Fatih Birol, head of the International Energy Agency (IEA).