Oil rose nearly 2 percent to $68 a barrel on Tuesday as unrest in Nigeria cut off more supplies from the world's eighth largest crude exporter. London Brent crude for June settled up $1.28 at $68.11 a barrel after trading lower in earlier activity. US crude added 71 cents to $63.17 a barrel.
Prices jumped on news Nigerian villagers occupied a major oil pipeline hub, forcing Royal Dutch Shell to cut output by 170,000 barrels per day and declare force majeure, allowing it to suspend supply obligations.
"The market is underpinned by gasoline tightness and ongoing geopolitical troubles," said oil analyst Geoff Pyne. "It's difficult to see much downside for the market, really."
Militant attacks have now shut off nearly 900,000 bpd, or about 30 percent, of Nigeria's supply capacity. Earlier in the session, prices fell on expectations that weekly US inventory data would show a build in fuel inventories. As refiners begin to bring plants back from maintenance, analysts polled by Reuters forecast the weekly data would on Wednesday show US gasoline stocks up by 1.1 million barrels.
Crude inventories were expected to rise by 100,000 barrels, while distillate fuel stocks were seen up 1.4 million barrels. "We are at a stage where they've got to build up the inventories for the peaking demand that's coming in the middle of June," said Tobin Gorey, a commodity analyst with the Commonwealth Bank of Australia in Sydney.
Falling gasoline stocks in the world's top oil consumer have supported prices in recent weeks. Concerns about supplies ahead of the summer driving season have also helped push average US pump prices to a record $3.10 a gallon.
The Organisation of the Petroleum Exporting Countries on Tuesday said its current output of around 30 million bpd was more than enough to cover demand during the peak summer driving season. Opec's head of research, Hasan Qabazard, went further to say the group might not have to change oil output when it holds its next scheduled meeting in September.