Oil above $110 on U.S. recovery hopes, supply worries

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Brent crude oil rose on Friday as strong U.S. jobs data fuelled hopes of better demand outlook in the world's top oil consumer, while concerns over supply from the Middle East added support.

Investors took on more risk as the jobs data added to other positive economic news, suggesting a steady recovery in the world's largest economy.

Oil got a further boost after President Barack Obama said military force remained an option if sanctions and diplomacy failed to thwart Iran's nuclear ambitions.

"The jobs figures were actually not far off from what they were when the Federal Reserve initiated QE3," said Harry Tchilinguirian, oil analyst at BNP Paribas in London.

"And the inflation rate has fallen. So the market is seeing this jobs report as a sign that the U.S. will continue its asset buying programme as planned."

Brent crude was up $1.07 at $110.03 per barrel by 1150 GMT, gaining for a second day after snapping four straight days of losses.

The April contract, which expired on Thursday, settled 90 cents higher, but the benchmark was poised for its fourth weekly decline in five weeks.

U.S. oil gained 50 cents to $93.53 per barrel, and was set to post its second straight week of gains.

Investors looked ahead to more U.S. economic data with the New York Federal Reserve's Empire State Manufacturing Survey for March and the ISM manufacturing survey to be released at 1230 GMT and 1315 GMT respectively.

STANDOFF

Iran was still more than a year away from developing a nuclear weapon, Obama said in an interview with Israeli television broadcast on Thursday, six days before his visit to Israel.

Obama appeared to send a message to Prime Minister Benjamin Netanyahu on the need for patience with Washington's Iran strategy while also showing U.S. resolve to confront Tehran if necessary.

Worries the standoff between the West and Iran over the Islamic Republic's controversial nuclear programme will escalate and disrupt oil supplies have kept Brent above $100 a barrel through most of 2012 and this year despite weak demand.

The number of Americans filing new claims for unemployment benefits dropped for a third straight week last week, the latest indication the labour market recovery was gaining traction.

That pushed the Dow Jones industrial average to extend its winning streak to 10 days on Thursday, a string of gains last seen in late 1996, to end at another record high. The S&P 500 took a late-day run at its record closing high of 1,565.15, but ended just 2 points away.

Beyond fundamental factors of demand growth and supply concerns, U.S. oil is gaining faster than Brent because investors are unwinding positions on the spread of the two contracts .

The difference has narrowed nearly $8 a barrel after touching $23.45 on Feb. 8, the widest since end-November.

The U.S. benchmark is benefiting from work on a key oil pipeline that will help ease an oil glut in the Midwest of the United States from a drilling boom. (Additional reporting by Manash Goswami in Singapore; editing by James Jukwey)



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