Oil Hits 2016 High on U.S. Draw Forecasts, Nigeria Worry

Oil prices continued their climb on Tuesday, hitting eight-month highs, as expectations of U.S. crude draws underpinned a market already worried about potential supply shortages from attacks on Nigeria's oil industry.

U.S. crude stockpiles likely fell by 3.5 million barrels last week to mark a third straight week of declines, a preliminary Reuters poll showed.

Trade group American Petroleum Institute is expected to cite a drawdown as well in its inventory report due at 4:30 p.m. (2030 GMT), before official stockpiles data slated for Wednesday from the U.S. government.

Crude oil rallied in the past two sessions after rebels in Nigeria's Niger Delta vowed to halt output in the country, which until last year was Africa's biggest producer turning out about 2 million barrels per day (bpd). The Nigerian government said on Tuesday it was initiating talks with the rebels.

"The market remains concerned about unscheduled supply interruptions with the latest coming from additional shut-ins in Nigeria," Dominick Chirichella, senior partner at the Energy Management Institute in New York, said.

"With the industry projecting a decline in total U.S. crude oil stocks in this week's reports, the market bears are remaining on the sidelines."

Brent crude futures were up 55 cents at $51.10 a barrel by 12:20 p.m. EDT (1620 GMT), after rising to $51.30 earlier, their highest since October.

U.S. crude's West Texas Intermediate (WTI) futures gained 40 cents to $50.09, having touched a fresh 2016 peak of $50.37 earlier.

Both Brent and WTI have almost doubled in value since winter, when they hit their lowest since 2003.

Prices began recovering since end February on talk of an OPEC production freeze, which, however, did not materialize. The rally heightened after last month's wildfires in Canada's oil sands region and also has been supported by supply outages elsewhere, including Nigeria, Venezuela and Libya.

The U.S. Energy Information Administration said expects crude production declines for 2016 and 2017 to remain unchanged from a month ago.

Production will fall by 830,000 bpd this year to 8.6 million bpd, while drop next year by 410,000 bpd to 8.19 million bpd, the agency said in its short term energy outlook.

The EIA also said raised its 2016 U.S. oil demand growth forecast by 220,000 bpd from a previous 140,000 bpd. (By Barani Krishnan; Additional reporting by Amanda Cooper in LONDON; Editing by Marguerita Choy)