Oil rose towards $124 a barrel on Friday and was heading for a fifth straight weekly gain, as concern over cuts in Iranian supply offset worries high oil prices could restrain demand.
European buyers of Iranian oil have cut back on purchases ahead of a European Union embargo on imports of Iran's oil effective July 1. Some of Iran's biggest customers in Asia including China have also reduced purchases.
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Brent crude rose by 7 cents to $123.69 by 1449 GMT, after trading as high as $124.28 earlier. It reached $124.50 on Thursday, the highest intra-day price since May 3.
"The supportive factors are on the supply side - Iran and Iran and Iran, with a bit of Syria and Sudan," said Christopher Bellew, a broker at Jefferies Bache in London. "It would not be at these numbers if it was not for the supply-side problems."
U.S. crude was up 83 cents to $108.66, extending its rally into a seventh day, its longest rising streak since a 10-day gain in December 2009.
Japan, the world's third-largest oil importer, may cut Iranian crude imports by a more-than-expected 20% as it seeks a waiver from U.S. sanctions. Last year, the country bought almost 9% of its crude from Iran.
Europe's ban on Iranian oil may end up breathing new life into the country's ageing oilfields, Western and Iranian oil experts said on Friday. Iran said on Thursday it had maintained production levels despite sanctions.
Olivier Jakob, oil analyst at Petromatrix, put resistance for Brent at Thursday's close, then at $125 and afterwards at $127.02, the 201l high reached in April last year.
One closely watched technical indicator, the relative strength index, shows Brent is overbought, amounting to a headwind for any further rally.
Brent's premium to U.S. crude narrowed to $15.64 as inventories at Cushing, the delivery point for U.S. crude, fell last week. The spread had widened to more than $20 earlier in the month on rising stocks in the U.S. Midwest.
Supply concerns over Iran, as well as production losses in Syria and South Sudan, have offset concern about economic problems in Europe and a weaker global demand outlook.
In euros, the price of Brent reached a record high on Thursday, adding rising fuel costs to the euro zone's debt troubles. Still, European shares and the euro rose on Friday as investors focused on bright spots in the global economy.
Upbeat U.S. economic data on Thursday pointed to a more robust picture for oil demand. The number of Americans filing new claims for jobless benefits held at a four-year low, while December home prices rose 0.7%.
But President Barack Obama said on Thursday there was no "silver bullet" for high gasoline prices. Lawmakers from his own party are asking him to take steps to ease the price pressure in the short term.
Democratic lawmakers on Wednesday urged the White House to signal it is ready to tap the country's strategic petroleum reserve. Obama made no mention of taking that step in his speech.