Oil is rising on China's optimism, while the currency is falling, implying a large weekly increase

Oil prices jumped a dollar a barrel on Friday, putting them on track for their greatest weekly gains since October, as the US dollar fell to a nine-month low and additional evidence pointed to rising demand from top oil importer China.

By 11:16 a.m. EST, Brent crude futures had risen $1.01, or 1.2%, to $85.04 per barrel (1616 GMT). West Texas Intermediate crude futures rose $1.18, or 1.5%, to $79.57 per barrel.

Brent is up 8% this week, while WTI is up 7.7%, recouping much of last week's losses.

The US dollar index plummeted to its lowest level in more than seven months, a day after data revealed that inflation declined in December for the first time in two and a half years, fueling hopes that the Federal Reserve may delay its rate hikes.

A weakening dollar increases demand for oil, making it less expensive for customers holding foreign currencies.

Recent Chinese oil purchases and an increase in road traffic in the country are also driving prospects for a demand recovery in the world's second-largest economy following the reopening of its borders and the relaxation of COVID-19 regulations following demonstrations last year.

"Everyone is looking at Chinese mobility indicators, and they are pointing upward, indicating improving oil demand and supporting prices," said Giovanni Staunovo, an analyst at UBS.

"The next thing to watch is if this translates into increased Chinese crude imports and whether energy authorities (IEA, OPEC) update their 1Q21 demand predictions upward," Staunovo said.

According to ANZ analysts, a congestion indicator encompassing the 15 Chinese cities with the highest number of vehicle registrations rose 31% from the previous week.

Price increases "are pencilled in as traders anticipate a further reduction in Russian production and the normalisation of China's gasoline consumption," according to PVM oil analyst Stephen Brennock.

"Before then, however, given the current state of the oil balance, renewed bouts of selling cannot be ruled out," he continued.