Oil prices rose on Monday on optimism that China will see a significant recovery in demand after positive signs that the country's coronavirus pandemic is easing in the hardest-hit areas.

Brent crude futures for July delivery rose $2.69 to settle at $114.24 a barrel, up 2.4%, while U.S. West Texas Intermediate (WTI) crude rose $3.71, or 3.4%, to $114, 20 per barrel.

Shanghai aims to reopen widely and allow normal life to resume for the city's 25 million people from June 1, a city official said on Monday, after noting that 15 of its 16 districts had eliminated cases outside the quarantine area.

However, an estimated 46 cities in China are under lockdown, hitting spending, factory production, and energy use. In line with an unexpectedly sharp drop in industrial output in April, China processed 11% less crude oil, with its lowest daily throughput since March 2020.

US gasoline futures hit record highs again on Monday as falling stocks stoked supply concerns. Stocks in the Strategic Petroleum Reserve fell to 538 million barrels, the lowest since 1987, data from the US Department of Energy showed on Monday.

The Movement of Oil Prices Before Experiencing an Increase

Record-high gasoline prices show no sign of spurring demand crushing with the US economy looking strong enough to propel a strong start to a tough driving season in just a few weeks.

Oil prices also found support as EU diplomats and officials expressed optimism about reaching an agreement on a gradual embargo of Russian oil despite concerns about supplies in eastern Europe.

However, European Union foreign ministers on Monday failed in their efforts to pressure Hungary to lift its veto over the proposed oil embargo, with Lithuania saying the bloc was "held hostage by one member state".

With the EU's planned ban on Russian oil and a slow increase in OPEC production, oil prices are expected to remain close to current levels near $110 a barrel, said Naohiro Niimura, partner at Market Risk Advisory.

Oil prices slipped on Monday, giving up earlier gains as investors took profits after surging in the previous session, but global supply concerns loom with the European Union preparing to lift a ban on imports from Russia.

Brent crude futures were down 64 cents, or 0.6%, at $110.91 a barrel by 0137 GMT, while US West Texas Intermediate (WTI) crude futures were down 60 cents, or 0.5%, at $109. 89 per barrel.

Oil Had Weakened Before Rising

The oil market is expected to rise this week as the European Union's pending ban on Russian oil will further tighten global crude and fuel supplies, said Kazuhiko Saito, chief analyst at Fujitomi Securities Co Ltd.

The European Union is still aiming to agree to a gradual embargo on Russian oil this month despite concerns about supplies in eastern Europe, four diplomats and officials said on Friday, rejecting suggestions of a delay or watering down of the proposal.

Oil prices remain bullish, especially the short-term WTI contracts, as US gasoline prices continue to rise amid weaker imports of oil products from Europe, said Saito at Fujitomi Securities.

On the supply side, US energy firms in the week to May 13 added oil and natural gas rigs for the eighth straight week as high prices and a push by the federal government prompted drillers to return to the good pad.

Elsewhere, OPEC+ has downplayed previously agreed plans for increased production due to underinvestment in oil fields in some OPEC members and, more recently, losses in Russian production.

The latest monthly report from OPEC showed its production in April rose by 153,000 barrels per day (BPD) to 28.65 million BPD, lagging behind the 254,000 BPD gain OPEC allowed under the OPEC+ deal.