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Oil Set for Weekly Gain on China Optimism, Brighter US Outlook

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(Bloomberg) — Oil headed for a weekly gain, rebounding from a weak start to the year, on China’s improving demand outlook and as US inflation cooled.

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China ramped up purchases of crude this week after Beijing issued new import quota, and consumption is poised to surge to a record this year following the nation’s exit from Covid Zero. While West Texas Intermediate eased toward $78 a barrel on Friday, oil futures are up around 6% for the week. 

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US consumer prices in December posted the first monthly decline since 2020, fueling expectations that the Federal Reserve will slow the pace of interest-rate hikes, and adding some bullish sentiment across financial markets.

Oil has pushed higher after a rocky start to the year, with a raft of forecasters from Goldman Sachs Group Inc. to top hedge fund manager Pierre Andurand predicting prices will rally back above $100 a barrel in 2023. There are also tentative signs that trading activity has picked up in the new year.

“Markets are upbeat on what China is doing at the margin, but I don’t think everyone is sold on the roaring economy thesis,” said Vishnu Varathan, the Asia head of economics and strategy at Mizuho Bank Ltd. “Although a pullback from recession risks has given oil some breathing space, if prices rise too much, that could quickly scratch off the demand-side support.”

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