Oil prices surged to two-month highs on Friday over optimism that China will ease its Covid-19 restrictions and the Group of Seven advanced economies agreeing to set a price cap on Russian crude.
Brent, the benchmark for two thirds of the world’s oil, settled 4.12 per cent higher at $98.57 a barrel at the close of trading on Friday. West Texas Intermediate, the gauge that tracks US crude, closed up 5.04 per cent at $92.61 a barrel.
Oil rallied earlier on further speculation that China, the world's largest crude oil importer, is about to "tweak" their pandemic rules, Edward Moya, senior market analyst at Oanda, said.
"Chinese crude demand has been capped and if that roars back, that alone could send oil prices 5 per cent regardless of global economic slowdown fears," said Mr Moya.
About three years into the pandemic, China is continuing with strict Covid-19 containment curbs that have dampened growth in the world’s second-largest economy.
The G7 nations will finalise the implementation of the price cap on seaborne Russian oil in the coming weeks, the group said in a statement on Friday.
"We continue to encourage oil-producing countries to increase production, which will decrease volatility in energy markets."
The statement did not reveal how the cap will be implemented.
The purpose of the price cap is to permit Russian oil to reach markets that have not imposed import bans, limiting further increases in crude oil prices while dealing a blow to Moscow's finances.
An EU embargo on Russian crude oil and product imports that comes into effect in December 2022 and February 2023, respectively, is expected to result in significant declines in Russian crude output.
Russia, which will continue exporting crude to some European countries after the ban, will still need to find a new market for more than 1 million barrels per day of crude by December, according to analysts.
The country's total oil production is forecast to decline to 9.5 million bpd by February 2023, a 1.9 million bpd drop compared to February 2022, the International Energy Agency said in a report earlier.
Crude prices rose earlier in the session on the back of a weaker US dollar.
The US Dollar Index, a measure of the value of the greenback against a weighted basket of major currencies, was down 1.5 per cent at 111.25. A weaker dollar makes oil cheaper for holders of other currencies.
Investors are hesitant to continue betting on the dollar. The greenback is down more than 3 per cent since hitting a two-decade high of 114.78 in late September.
The US Federal Reserve on Wednesday raised interest rates by another 75 basis points — the fourth time in a row — but suggested it could soon scale back the size of the increases as it continues to battle rampant inflation.
The Bank of England raised its interest rate by 75 basis points — representing the eighth consecutive jump in interest rates by the central bank — and said the country faced the longest recession.
BoE Governor Andrew Bailey said a sharp increase in energy prices as a result of Russia's war in Ukraine had significantly affected the economy.
“Investors got the policy pivot they were looking for this week, unfortunately not from the Fed but from the BoE, instead,” said Swissquote Bank senior analyst Ipek Ozkardeskaya in a research note.