By Stephanie Kelly

NEW YORK (Reuters) -Oil prices rose almost 2% on Thursday after U.S. retail data prompted a sell-off in the dollar, though investors eyed an International Energy Agency (IEA) report that flagged slowing demand growth this year.

futures were up $1.39, or 1.7%, at $82.99 a barrel by 1:15 p.m. EST. U.S. West Texas Intermediate crude futures gained $1.52, or 2%, at $78.16.

The slid about 0.3% after data showed U.S. retail sales fell more than expected in January. A weaker dollar usually boosts oil prices as it makes the commodity cheaper for holders of other currencies.

Retail sales dropped 0.8% last month, the Commerce Department’s Census Bureau said on Thursday. Data for December was revised lower to show sales rising 0.4% instead of 0.6%, as previously reported.

The data prompted optimism around interest rate cuts from the Federal Reserve going forward, which could be positive for oil demand.

“Rate cuts are back on the table and that’s giving us a bit of a boost,” said Phil Flynn, an analyst at Price Futures Group.

Further oil price gains were limited, though, by an IEA report on Thursday which said that global oil demand is losing momentum, prompting the agency to trim its 2024 growth forecast to 1.22 million barrels per day (bpd) from 1.24 million bpd.

On the supply side, the IEA estimated that supply will grow by 1.7 million bpd this year, up from its previous forecast of 1.5 million bpd.

Both oil benchmark contracts lost more than $1 a barrel on Wednesday, pressured by the rise in inventories as refining dropped to its lowest levels since December 2022. [EIA/S]

News that two major economies began recessions also weighed on prices.

Britain fell into recession in the second half of 2023 when its gross domestic product (GDP) contracted by 0.3% in the fourth quarter, having shrunk by 0.1% in the third quarter, official data showed.

Japan unexpectedly slipped into recession at the end of last year, surrendering its title as the world’s third-biggest economy to Germany.