Brent oil rose by nearly $2 per barrel on Friday as traders covered short positions going into the weekend and kept a close watch over a meeting between Western powers and Iran over its nuclear program and renewed violence in Libya.
Six western nations and Iran were expected to iron out an agreement during a meeting in Geneva. This could ease sanctions against Iran, which have removed more than 1 million barrels per day (bpd) of oil from world markets. Any increase in supply from the Islamic Republic could push oil prices sharply lower.
In Libya on Friday, protesters prevented a tanker from loading 600,000 barrels of oil headed for Italy at the eastern port of Hariga. On Thursday in Tripoli, the worst fighting in months broke out.
"You've had kind of a down week and there are lots of moving pieces in the Mideast right now," said Bill O'Grady, chief market strategist at Confluence Investment Management in St. Louis. "If you've been short all week, why carry the shorts into the weekend?"
In early trade, Brent hit a four-month low. But it but surged nearly $2 per barrel higher to a high of $105.38. The contract settled $1.66 per barrel higher at $105.12 after trading as low as $102.98, the lowest since early July.
U.S. oil ended 40 cents higher at $94.60, after dropping to a session low of $93.90.
U.S. oil briefly turned negative early in the session after U.S. Labor Department data showed an increase of more than 200,000 jobs last month. The positive economic data fed expectations that the U.S. Federal Reserve may pull the brake on its quantitative easing program, which would dampen demand for oil, analysts said.
Brent's premium over U.S. oil widened on presumptions that Brent may be cheaper, or that U.S. oil may get more expensive to ship after a train carrying crude oil derailed and exploded in Alabama.
The European benchmark's premium over West Texas Intermediate (WTI), the grade of crude oil underpinning the U.S. oil futures contract, <CL-LCO1=R> widened by close to $1.70 to a high of $10.82. Earlier, it had narrowed to a three-week low of $8.60 per barrel. It settled at $10.52.
A deal between the six Western nations and Iran was not yet imminent, U.S. Secretary of State John Kerry said early on Friday, noting that "there are some important gaps that have to be closed."
News that Saudi Arabia cut its crude output in October to 9.75 million bpd from 10.1 million in September also helped keep a floor under prices. The figures were given to Reuters by an industry source familiar with the matter.
Still, both Brent and U.S. oil ended with their fourth and fifth straight weeks of losses, respectively, as oil markets remain well supplied. Money managers had also cut their bullish bets in U.S. crude oil futures and options to the lowest since June, government data showed on Friday.
The apparent improvement in relations between Iran and the West is raising the possibility of even more supply, analysts said.
"The theme is overwhelmingly bearish," VTB Capital oil and commodities strategist Andrey Kryuchenkov said. "The long-term fundamental picture (for supply) is comfortable anyway you look at it."
(By Jeanine Prezioso; Additional reporting by Christopher Johnson in London; Editing by Marguerita Choy, Chizu Nomiyama and David Gregorio)