Oil prices rose sharply Thursday, boosted by the improving risk sentiment in the wake of the dovish Federal Reserve meeting as well as the International Energy Agency lifting its oil demand forecast for next year.

By 08:50 ET (13.50 GMT), the U.S. crude futures traded 2.7% higher at $71.31 a barrel and the Brent contract climbed 2.6% to $76.16 a barrel.

IEA lifts 2024 global oil demand forecast
The crude market received a boost Thursday with the IEA raising its forecast for global oil consumption in its monthly report, saying it will rise by 1.1 million barrels per day, up 130,000 barrels a day from its previous forecast, citing an improvement in the outlook for the United States and lower oil prices.

The monthly report from OPEC was also constructive, with the producing cartel estimating a tighter crude oil market for the fourth quarter of this year and 2024 as supply falls short of market demand if announced output cuts are maintained.

Weaker dollar helps support market
The market had pushed higher on Wednesday after the U.S. central bank kept interest rates unchanged at its final policy meeting of the year, and signaled rate cuts to come in 2024.

Lower interest rates reduce consumer borrowing costs, which can boost economic growth and demand for oil, particularly important when discussing the U.S., the largest consumer of crude in the world.

U.S. oil inventories, in fact, fell by 4.3 million barrels in the week to Dec. 8, according to data from the Energy Information Administration on Wednesday, much more than 650,000 barrels expected.

Additionally, the dollar was hit hard as a result of the Feds more dovish stance, falling to a fresh four-month low earlier Thursday. A weaker dollar makes oil, which is denominated in the U.S. currency, less expensive for foreign purchasers.

Middle East supply concerns remain in focus
Crude prices also took some support from concerns over supply disruptions in the Middle East, after an attack on a tanker in the Red Sea. The incident was the latest in a string of attacks on U.S. and Israeli vessels in the area by Yemen-backed Houthi forces.

The attack pushed up concerns over the spillover of a bigger conflict in the region, which could potentially disrupt supplies.

But the Israel-Hamas war, which was the cause of increased tensions in the region, has so far had little impact on Middle Eastern oil supplies. Traders had steadily priced down a risk premium from the conflict over the past two months.