Investing.com– Oil prices rose slightly on Thursday after steep losses in the prior session, with a recovery in the dollar largely offsetting optimism over data showing a substantial drop in U.S. oil inventories over the past week.

Increased risk aversion, after ratings agency Fitch downgraded the U.S. sovereign rating, also spurred oil traders to take some profits off the table. Prices were trading at three-month highs prior to Wednesday’s tumble.

Brent oil futures rose 0.3% to $83.45 a barrel, while West Texas Intermediate crude futures rose 0.3% to $79.72 a barrel by 22:09 ET (02:09 GMT). Both contracts were trading almost 2% down this week, after five straight weeks of strong gains.

Strong dollar offsets massive inventory draw

The dollar shot up this week, shrugging off the Fitch downgrade as data showed some resilience in the U.S. economy. A stronger-than-expected private payrolls reading on Wednesday was a particular source of strength for the greenback, given that it pointed to strength in the labor market ahead of key nonfarm payrolls data on Friday.

Strength in the dollar pressured most commodities priced in the greenback, as resilience in the U.S. economy pushed up bets that the Federal Reserve will have enough headroom to keep raising interest rates.

Rising oil prices also spurred some concerns that inflation will remain sticky, necessitating more rate hikes from the Fed.

This notion largely offset optimism over tightening supplies, as official data showed that U.S. crude inventories shrank by over 17 million barrels in the week to July 28, much higher than expectations for a drop of 1.4 million barrels.

The draw was also the biggest recorded in data stretching back to 1982, and indicated a substantial tightening in crude markets after steep production cuts by major suppliers this year.

OPEC meeting awaited, extended supply cuts in focus

Focus is now on an upcoming meeting of the Organization of Petroleum Exporting Countries on Friday. Saudi Arabia, the de facto leader of the cartel, is expected to extend a 1 million barrel per day supply cut into September.

Production cuts by Saudi Arabia and Russia were the biggest boost to oil prices, with global supplies set to tighten substantially in the remainder of the year. The move was done in order to offset an expected decline in oil demand.

Tighter supplies are expected to spruce up oil prices this year, with investment bank Goldman Sachs (NYSE:GS) recently hiking its oil price outlook on this notion.