I don't know about Parallels accepting a macOS system install. I don't use Parallels, but I have always heard that the only Mac system that is supported by Parallels is Snow Leopard Server. I'm probably wrong on that, I just have no recent knowledge...
** make the bootable USB installer.
I use the same steps multiple time a day, I know it works, and I even did one when I was typing this in to make sure the steps are in the right sequence...
Thanks for that! I managed to find an 8GB stick in the end, but what about using a partition on an external USB HD for the 16GB?
You can use any Mac OS Server software in Parallels up to 10.6. After that there's no server DVDs so you can use the ordinary Mac OS. I have Parallels VMs for 10.6, 10.9, 10.11, and 10.12. Now I need one for 10.13.