Crude oil prices increase supported by the prospect of a tight market

EU nations are negotiating deal on Russian oil sanctions that would embargo shipment deliveries but delay sanctions on oil delivered by pipeline to win over Hungary and other landlocked member states

By Marcy de Luna

HOUSTON (Reuters) -Oil prices rose on Friday, as signs of a tight market supported prices ahead of the U.S. Memorial Day holiday weekend, the unofficial start of the peak summer demand season in the United States.

Further, European Union countries are negotiating a deal on Russian oil sanctions that would embargo shipment deliveries but delay sanctions on oil delivered by pipeline to win over Hungary and other landlocked member states, officials said.

Hungary's resistance to oil sanctions - and the reluctance of a handful of other countries - has held up implementation of a sixth package of sanctions by the 27-member EU against Russia over its invasion of Ukraine.

"We believe that a sharp contraction in Russian oil exports could trigger a full-blown 1980s style oil crisis and push Brent well past $150 per barrel," Bank of America said in a note.

An agreement could be reached by envoys of European Union governments in Brussels on Sunday, in time for their leaders to endorse it at their May 30-31 summit, officials said.

Brent crude was up 1.18 cents, or 1.0%, at $118.58 at 1659 GMT, while U.S. West Texas Intermediate (WTI) crude rose 39 cents, or 0.3%, to $114.48 a barrel.

"The U.S. driving season and strong travel demand should help (prices). With supply growth lagging demand growth, the oil market is likely to stay undersupplied. Hence, we remain positive in our outlook for crude prices," said UBS analyst Giovanni Staunovo.

U.S. gasoline inventories fell in the latest week, despite higher refinery runs, U.S. Energy Information Administration data showed on Wednesday. The start of summer driving season in the United States normally entails increased consumption.

Concern over Iran's paramilitary Revolutionary Guard seizing two Greek oil tankers on Friday in the Persian Gulf, along with a U.S. long holiday weekend ahead, is making investors nervous to be short going into the weekend, said Phil Flynn, an analyst at Price Futures Group.

"We are seeing assumptions that the demand for oil and gas may be stronger as the stock market suggests that fears of a recession may be being overplayed," Flynn said.

Meanwhile, Russian President Vladimir Putin told Austrian Chancellor Karl Nehammer on Friday that Moscow would meet its natural gas delivery commitments.

"He also raised the subject (and said) that all deliveries would be completed in full," Nehammer said.

Oil prices jumped after the Iranian revolution in 1979 and a long war between Iran and Iraq (1980-88), although a global recession soon hindered fuel demand and oil prices dropped back.

Prices have gained about 50% so far this year.

(Reporting by Marcy de Luna in Houston, additional reporting by Bozorgmehr Sharafedin in London, Stephanie Kelly in New York; Editing by Diane Craft, Kirsten Donovan)