Oil prices set for second week of gains on brighter China outlook

Oil prices were set to post a second straight week of gains on Friday, spurred largely by brightening economic prospects for China which should boost its fuel demand.

Brent futures for March delivery gained 30 cents, or 0.35 per cent, to $86.46 a barrel by 0317 GMT, while US crude advanced 49 cents to $80.82 per barrel, a 0.6 per cent gain.

Both closed 1 per cent higher on Thursday, near their highest closing levels since December 1.

Chinese November oil demand climbed to the highest level since February, data from the Joint Organisations Data Initiative showed on Thursday. OPEC said on Tuesday that Chinese oil demand would rebound this year due to relaxation of the country's Covid-19 curbs and drive global growth.

Oil prices were also supported by hopes that the US central bank will soon end its tightening cycle.

Federal Reserve Bank of New York President John Williams said on Thursday the US central bank is seeing signs of inflationary pressures cooling off from torrid levels.

"The two largest economies in the world are needing more crude. The oil market has been down on global recession fears, but it still is showing signs it can remain tight a little while longer," said Edward Moya, senior market analyst at OANDA.

Also extending support to prices was a weaker dollar index, which was headed for a second consecutive weekly decline. A weaker dollar makes crude, priced in the currency, cheaper for foreign buyers.

"Oil traders are potentially buying the dip now, amid optimism around China and the United States," said Tina Teng, analyst at CNC Markets.

According to most economists in a Reuters poll, the Fed will end its tightening cycle after a 25 basis point hike at each of its next two policy meetings, and then likely hold interest rates steady for at least the rest of the year.

A number of other Fed officials have expressed support for a downshift in the pace of rate rises.

A rebound in Chinese economy and the Russian oil industry's struggles under sanctions could tighten energy markets in 2023, International Energy Agency (IEA) head Fatih Birol said on Thursday.