By Peter Nurse

Investing.com -- Oil prices stabilized Monday, helped by dollar weakness, although concerns remain about the outlook for demand given China’s COVID-19 woes and the potential for further interest rate hikes in the United States and Europe.

By 05:10 ET (09:10 GMT), U.S. crude futures traded 0.9% higher at $87.53 a barrel, while the Brent contract rose 1% to $93.78.

U.S. Gasoline RBOB Futures were up 0.8% at $2.4529 a gallon.

The U.S. dollar traded sharply lower Monday, dropping to a three-week low against the euro, the currency which makes up the majority of the dollar index, as traders reassessed the likelihood of the European Central Bank raising interest rates substantially over the next few months.

This selloff has made crude, and other commodities denominated in dollars, much cheaper for foreign buyers.

The focus this week will be on Tuesday’s U.S. CPI inflation data, which could influence the Federal Reserve’s plans to hike interest rates, which will be priced into crude markets.

Also helping the tone have been the impressive gains on the battlefield for Ukraine, which have raised hopes for a quick end to the war and to the destructive mutual economic blockade between the West and Russia.

That said, Monday’s gains are tentative after the crude market posted the lowest weekly close in seven months on Friday as traders weighed up the potential demand destruction associated with aggressive monetary policy tightening and China's COVID-19 curbs.

The European Central Bank lifted its interest rates by a whopping 75 basis points last week, the Federal Reserve is set to do something similar later this month and the Bank of England is also expected to keep on hiking, even after postponing its next rate-setting meeting as a mark of respect following the death of Queen Elizabeth II.

These central banks are set to hike rates to combat inflation even at the expense of economic growth.

The latest data from the U.K. showed that gross domestic product for the three months to July came in at 0.0% versus the prior three months, signaling the wider impact of soaring inflation on household and business spending.

Additionally, trade data, released last week, showed that Chinese oil imports slowed substantially in August due to COVID-related disruptions in the economy, raising fears of substantial demand destruction, as the year progresses, from the largest importer in the world.

This week, markets await the weekly U.S. inventory data as well as more details on Washington’s planned price caps on Russian oil exports, which are expected to be imposed in December.