By Stephanie Kelly
NEW YORK (Reuters) -Oil prices rose on Monday, as optimism around China relaxing its COVID-19 restrictions outweighed fears of a global recession that would weigh on energy demand.
China, the world's top crude oil importer, is experiencing its first of three expected waves of COVID-19 cases after Beijing relaxed mobility restrictions but said it plans to step up support for the economy in 2023.
"There is no doubt that demand is being adversely influenced," said Naeem Aslam, analyst at brokerage Avatrade. "However, not everything is so negative as China has vowed to fight all pessimism about its economy, and it will do what it takes to boost economic growth."
Brent crude gained 76 cents to settle at $79.80 a barrel, while U.S. West Texas Intermediate crude rose 90 cents to $75.19.
Prices pared gains earlier before rising again in a volatile session.
"The reality here is that we still have a fear of a great recession looming on the horizon that has not gone away," said Bob Yawger, director of energy futures at Mizuho. "It's going to be difficult to make big gains here."
Oil surged toward its record high of $147 a barrel earlier in the year after Russia invaded Ukraine in February. It has since unwound most of this year's gains as supply concerns were edged out by recession fears.
European Union energy ministers on Monday agreed to a gas price cap, after weeks of talks on the emergency measure that has split opinion across the bloc as it seeks to tame the energy crisis.
The cap can be triggered starting from Feb. 15 2023, the document detailing the final deal showed. The deal will be formally approved by countries in writing, after which it can enter into force.
The U.S. Federal Reserve and European Central Bank raised interest rates last week and promised more. The Bank of Japan, meanwhile, could shift its ultra-dovish stance when it meets on Monday and Tuesday.
"The prospect of further rate rises will hit economic growth in the new year and in doing so curb demand for oil," said Stephen Brennock of oil broker PVM.
Oil was supported by the U.S. Energy Department saying on Friday that it will begin repurchasing crude for the Strategic Petroleum Reserve - the first purchases since releasing a record 180 million barrels from the reserve this year.