OIL prices climbed about 3 per cent to a 2-month high on Thursday (May 26) on signs of tight supply ahead of US summer driving season, as the European Union (EU) wrangled with Hungary over plans to ban crude imports from Russia over its invasion of Ukraine.

Traders also noted oil prices followed a rise in equities and some weakening of the US dollar against a basket of currencies, which makes oil cheaper when purchased in other currencies.

Brent futures rose US$3.37, or 3.0 per cent, to settle at US$117.40 a barrel, while US West Texas Intermediate (WTI) crude rose US$3.76, or 3.4 per cent, to settle at US$114.09.

After rising for 6 days in a row, Brent closed at its highest since Mar 25. WTI settled at its highest since May 16.

"Crude prices rose as a tight oil market was going to remain in place given the start of the summer driving season was going to keep a downward trajectory for US stockpiles," said Edward Moya, senior market analyst at data and analytics firm Oanda.

Prices drew support from a big weekly drawdown in US crude inventories, reported on Wednesday.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

"The fundamental backdrop ... is getting price supportive ... and will turn even more bullish once the EU sanctions on Russian oil sales are endorsed by all parties involved," PVM Oil's Tamas Varga said.

European Council President Charles Michel said he was confident an agreement can be reached before the council's next meeting on May 30.

Hungary remains a stumbling block, as EU sanctions require unanimous support. Hungary is pressing for about 750 million euros (S$1.1 billion) to upgrade its refineries and expand a pipeline from Croatia.

Even without a formal ban, much less Russian oil is available as buyers and trading houses have avoided suppliers from the country.

Russia's oil production should decline to 480-500 million tonnes this year from 524 million tonnes in 2021, state-run news agency RIA reported, citing Deputy Prime Minister Alexander Novak.

Opec+ meets on Jun 2 and is expected to stick to last year's deal to raise July output targets by 432,000 barrels per day, 6 Opec+ sources told Reuters, rebuffing Western calls for a faster increase to control prices.

Other factors also are supporting oil prices.

"Shanghai is preparing to reopen after a 2-month lockdown, while the US peak driving season begins with the Memorial Day weekend," said Sugandha Sachdeva, vice-president of commodities research at Religare Broking. The United States celebrates Memorial Day on Monday.

The US government confiscated an Iranian oil cargo held on a Russian-operated ship near Greece and will send the cargo to the United States aboard another vessel.

Britain, meanwhile, announced a 25 per cent windfall tax on oil and gas producers' profits, alongside a £15 billion (S$25.9 billion) package of support for households struggling to pay energy bills.

Hungary announced new windfall taxes worth 800 billion forints (S$3 billion) on "extra profits" earned by banks, energy companies and other firms. REUTERS