By Ambar Warrick 

-- Oil prices were muted on Thursday, but stuck to a near two-week high amid increased expectations that U.S. consumer inflation data will ease further and herald smaller interest rate hikes in the coming months. 

U.S. data, which is due later in the day, is expected to show that inflation eased further in December from the prior month, necessitating less hawkish moves by the Federal Reserve.

This scenario is likely to weigh on the and point to improved economic conditions in 2023, which is beneficial to crude demand. 

fell 0.1% to $82.82 a barrel, while rose 0.2% to $77.55 a barrel by 21:23 ET (02:23 GMT). Both contracts rallied over 5% so far this week. 

Optimism over a weaker inflation reading largely offset data showing a massive, nearly 19 million barrel build in U.S. over the first week of January. The build came as refiners increased their inventories for the winter, and raised some concerns over sluggish near-term demand in the world’s largest oil consumer. 

U.S. also grew far more than expected, while the government only released a nominal amount of crude from its Strategic Petroleum Reserve. 

Fears of a looming economic recession in 2023 also saw oil prices mark a weak start to 2023. But prices recovered sharply in recent sessions on the prospect of a less hawkish Fed, as well as a U.S. government forecast that global petroleum demand will hit a record high this year.

Oil demand is expected to ramp up sharply in tandem with a Chinese economic recovery this, after the country reopened its international borders and cemented a pivot away from its disruptive zero-COVID policy. 

Data on Thursday showed that improved slightly in December after the government began easing its COVID-19 restrictions.

But in the near-term, the world’s largest oil importer is struggling with its worst-yet COVID-19 outbreak, which is likely to stymie an immediate economic recovery. 

Still, crude prices are also expected take support from tighter supply in the coming months, as the European Union prepares more sanctions on Russian oil shipments due to take effect from February. 

This comes after the U.S. and its allies introduced strict price caps on Russian supply in December as retaliation for Moscow’s invasion of Ukraine in early-2022. Any escalation in the conflict is also expected to disrupt global oil supplies, which in turn could push up prices.