U.S. crude oil rose by more than $1 a barrel to two-week highs on Tuesday as traders expected weekly government inventory reports to show stockpiles at the Cushing, Oklahoma, delivery point plunged to new record lows last week.

Brent rose as well as strength in the U.S. crude and gasoline markets outweighed the prospects for rebounding supply from Libya.

Stocks of U.S. crude oil at Cushing dropped to their lowest levels since 2008 in the week to May 2, and analysts said they expect supplies were drawn down further last week as the United States nears the start of its summer driving season when fuel demand usually rises.

According to industry group the American Petroleum Institute stocks at Cushing fell 590,000 barrels last week, while nationwide commercial crude stocks rose 912,000 barrels.

The U.S. Energy Information Administration will release its official report on Wednesday at 10:30 a.m. EDT (1430 GMT).

"We rallied because we are getting closer to minimal operating levels at Cushing," said Carl Larry, CEO of consultancy Oil Outlooks in Houston, Texas. "Demand for what is coming out of Cushing is still strong."

U.S. crude settled $1.11 higher at $101.70 a barrel, its highest settlement since April 29. Tuesday's settlement also marked the first time in nearly three weeks that U.S. crude settled above the 50-day moving average, a key technical level the American benchmark has struggled to climb above.

Brent crude for June delivery also hit a two-week high as it settled up 83 cents at $109.24 a barrel. The June contract expires on Thursday.

Libya announced on Monday its western oilfields, which protesters have blockaded since March, were ready to reopen, potentially raising crude output by 500,000 barrels per day (bpd). But on Tuesday, output was unchanged at 235,000 bpd.

International data kept a lid on Brent's gains as the Organization of the Petroleum Exporting Countries (OPEC) raised its forecast demand for its crude oil in 2014 to 29.76 million bpd, up 110,000 bpd from the previous estimate, but said its current output was meeting global consumption.

In China, implied oil demand climbed by 1.1 percent in April from a year earlier to 9.71 million bpd, according to a Reuters calculation based on preliminary data but industrial production and retail sales figures slipped.

In Ukraine, pro-Moscow rebels called for the eastern region of Donetsk to become part of Russia, while Moscow appeared to use the results of a disputed referendum to put pressure on Kiev to hold talks with rebels in breakaway regions.

The European Union responded by putting sanctions on a top aide to Russian President Vladimir Putin and the commander of Russian paratroopers as well as on two confiscated Crimean energy companies.

The world's biggest oil exporter Saudi Arabia pledged on Monday that it would boost supplies if the crisis in Ukraine caused any disruption.

The head of the International Energy Agency, the west's energy watchdog, said it had no plans to release emergency crude oil stocks due to the tensions with Russia.

"We only release stocks when there is a serious disruption the market cannot solve," IEA head Maria van der Hoeven said on the sidelines of a conference in Seoul. 

(By Elizabeth Dilts; Additional reporting by David Sheppard and Charles Staples in London, Keith Wallis in Singapore and Jane Chung in Seoul; Editing by Keiron Henderson, Jane Baird and Marguerita Choy)