Updates to settlement

By Arathy Somasekhar

HOUSTON, May 13 (Reuters) - Oil prices settled lower on Wednesday as investors worried about possible U.S. interest rate hikes and awaited updates on a high-stakes summit in Beijing between U.S. President Donald Trump and China's Xi Jinping.

Brent crude futures LCOc1 closed down $2.14, or 2%, to $105.63 a barrel. U.S. West Texas Intermediate futures CLc1 fell $1.16, or 1.14%, to $101.02.

Boston Federal Reserve President Susan Collins said on Wednesday the U.S. central bank may need to raise interest rates if inflation pressures do not abate, a sign that the war has begun to weigh on the U.S. economy. Higher oil prices have pushed up fuel costs and economists expect to see effects in the months ahead.

U.S. producer prices in April posted their biggest increase in four years, boosted by soaring costs for goods and services, the latest sign of accelerating inflation during the war with Iran. In April, U.S. consumer prices rose sharply for a second straight month, producing the largest annual increase in inflation in nearly three years.

Higher interest rates increase borrowing costs for businesses and consumers, which could slow economic growth and reduce oil demand.

Trump landed in Beijing on Wednesday, a day after saying he did not think he would need China's help to end the war, even as prospects for a lasting peace deal weakened and Tehran tightened its grip over the Strait of Hormuz.

China is the biggest buyer of Iranian oil despite sanctions pressure from the Trump administration. Trump is scheduled to meet Xi on Thursday and Friday.

"There is likely to be some structural tightness (in the oil market) for at least the balance of this year," said Rystad analyst Janiv Shah.

OPEC on Wednesday lowered its forecast for world oil demand growth in 2026. The International Energy Agency said global oil supply would not meet total demand this year as the war wreaks havoc on Middle East production.

U.S. crude stocks fell by 4.3 million barrels last week, compared with analysts' expectations in a Reuters poll for a 2.1-million-barrel draw, the U.S. Energy Information Administration said.

Gasoline stocks fell by 4.1 million barrels in the week, compared with analysts' expectations in a Reuters poll for a 2.9-million-barrel draw. ​Distillate stockpiles, which include diesel and heating oil, rose by 0.2 million barrels versus expectations for a 2.7-million-barrel drop.

The data briefly boosted oil futures. On Tuesday, oil prices rose more than 3% as hopes for a lasting U.S.-Iran ceasefire faded, dimming prospects for reopening the Strait of Hormuz.

Iran's Foreign Minister Abbas Araqchi said on Wednesday that Kuwait had "unlawfully" attacked an Iranian boat and detained four Iranian citizens in the Gulf. He added that Tehran demands their release and reserves the right to respond.

U.S. Vice President JD Vance said he believes progress is being made in negotiations with Iran to end hostilities, after Trump rejected Tehran's latest proposal as unacceptable.