Oil prices rose slightly in early trade on Friday and were on track for gains of more than 6% for the week on solid signs of demand growth in top crude-oil importer China and expectations of less aggressive interest rate rises in the United States.
U.S. West Texas Intermediate (WTI) crude futures rose 54 cents, or 0.69%, to $78.74.
WTI is up 6.2%, recouping most of last week’s losses, while Brent has jumped 6.7% so far this week.
Analysts said recent Chinese crude purchases and a pick-up in road traffic fuelled confidence in a demand recovery in the world’s second-largest economy following the reopening of its borders and easing of COVID-19 curbs after protests last year.
“Given the focus on energy security, we anticipate that Chinese imports will continue to pick up, particularly as refinery runs ramp and stockpiling crude remains a strategic priority,” RBC commodity strategist Michael Tran said in a client note.
In another encouraging sign, ANZ analysts said a congestion index covering the 15 Chinese cities with the highest number of vehicle registrations had risen 31% from a week earlier.
Oil prices have also been buoyed by a slide in the dollar to a nearly nine-month low after data showed U.S. inflation fell for the first time in 2-1/2 years, reinforcing expectations the Federal Reserve would slow the pace of rate hikes.
A weaker greenback tends to boost demand for oil as it makes the commodity cheaper for buyers holding other currencies.
However, some of the week’s gains will likely fizzle out in Asian trade, said Vandana Hari, founder of oil market analysis provider Vanda Insights.
“Crude is in for a correction, even if a modest one…. The past two sessions were almost entirely driven by renewed Fed pivot hopes, which, going by the experience of the past quarter, tend to be a short-lived phenomenon,” Hari said.