Oil prices rise $2 on tight supply and strong demand

Oil prices rose almost $2 on Tuesday on high summer fuel demand while supplies remain tight because of sanctions on Russian oil after its invasion of Ukraine.

Brent crude rose $1.80, or 1.6%, to $115.93 a barrel by 1209 GMT.

The U.S. West Texas Intermediate (WTI) crude contract for July, which expires later on Tuesday, rose $2.26, or 2.1%, to $111.82. The more active WTI contract for August was up $2.37 at $110.36.

UBS analyst Giovanni Staunovo said that despite concerns over economic growth, the latest data on flight activity and mobility on U.S. roads continues to show solid oil demand.

“We expect oil demand to improve further, benefiting from the reopening of China, summer travel in the northern hemisphere, and the weather getting warmer in the Middle East. With supply growth lagging demand growth over the coming months, we continue to expect higher oil prices,” he said.

Prices have been supported by supply anxiety after sanctions on oil shipments from Russia, the world’s second-largest oil exporter, and questions over how Russian output might fall due to sanctions on equipment needed for production.

European Union leaders aim to maintain pressure on Russia at their summit this week by committing to further work on sanctions, a draft document showed.

“Supply concerns are unlikely to subside unless there is a resolution to the Russia-Ukraine war, or unless we see a sharp rise in supply from either the U.S. or OPEC,” said Madhavi Mehta, commodity research analyst at Kotak Securities.

Prospects are receding for the successful negotiation of a nuclear deal with Iran and the lifting of U.S. sanctions on the Iranian energy sector.

Iran is escalating its uranium enrichment further by preparing to use advanced centrifuges at its underground Fordow site, a United Nations nuclear watchdog report seen by Reuters showed.

“Iran’s measures, if correct, likely mean we won’t be seeing a return of Iranian crude to greater world markets any time soon,” said OANDA analyst Jeffrey Halley.

Weekly U.S. petroleum inventory data will be delayed by a day this week because of a U.S. public holiday on Monday, with the American Petroleum Institute industry data for the week ending June 17 due on Wednesday and U.S. Energy Information Administration data scheduled for Thursday.