MELBOURNE: Oil prices climbed on Wednesday underpinned by a weaker dollar, which fell on signs of slowing inflation in the United States, easing fears that the world's largest oil user may face a recession because of further interest rate hikes.
Brent crude futures gained 20 cents, or 0.2%, to $85.66 a barrel at 0128 GMT, while U.S. West Texas Intermediate (WTI) crude futures rose 34 cents, or 0.4%, to $79.21 a barrel, extending gains of about 1% in the previous session.
"Sentiment shifted amid a positive company reporting season. Signs of cooling inflation also raised expectations that the Fed will be able to pause rate hikes," ANZ commodities analyst said in a note.
Tamer rate hike expectations helped lower the dollar index , which supported oil prices as a weaker greenback makes the commodity cheaper for buyers holding other currencies.
All eyes will be on a meeting on Wednesday of the Organization of the Petroleum Exporting Countries and allies including Russia, together called OPEC+, where producers are expected to endorse their current output targets agreed in November.
OPEC oil output fell in January, as Iraqi exports dropped and Nigeria's output did not recover, with the 10 OPEC members pumping 920,000 barrels per day (bpd) below the group's targeted volumes under the OPEC+ agreement, a Reuters survey found.
The shortfall was bigger than the deficit of 780,000 bpd in December.
On a bearish note, data from the American Petroleum Institute industry group showed crude stocks rose by about 6.3 million barrels in the week ended Jan. 27, according to market sources.
That was a bigger build than the 400,000 barrels that analysts polled by Reuters had expected on average.
Distillate stocks, which include diesel and heating oil, rose by about 1.5 million barrels, contrary to analysts' expectations of a 1.3 million barrel drop. (Reporting by Sonali Paul in Melbourne; Editing by Christian Schmollinger)