LONDON, Feb 9 Reuters Oil prices were steady on Thursday, as optimism over recovering Chinese demand was offset by U.S. oil inventories hitting their highest in months and signs the U.S. Federal Reserve could keep raising interest rates.

Brent crude futures gained 30 cents to 85.39 a barrel by 0856 GMT, while U.S. West Texas Intermediate WTI crude futures inched up 26 cents to 78.73 a barrel. Both benchmarks have gained around 7 so far this week.

Relentlessly rising U.S. commercial inventories and potentially entrenched inflation limit any immediate upside potential, said PVM analyst Tamas Varga.

He said recovering Chinese demand and falling inflation were set to support oil prices in the second half of the year.

Crude oil stocks in the United States rose last week to their highest since June 2021, helped by higher production, the Energy Information Administration said.

U.S. gasoline and distillate inventories also rose last week. 

U.S. Federal Reserve officials said more interest rate rises are on the cards as the bank presses forward with its efforts to cool inflation, sending bearish signals across risk assets like oil and equities. 

But the prospect of stronger demand from China lent some support to oil prices, as the world39;s secondlargest oil consumer ended more than three years of stringent zeroCOVID policy.

We expect Chinese oil consumption to increase by around 1.0 million barrels a day this year, with strong growth emerging as early as late in Q1,…