Brent crude futures rose above $97 a barrel Friday as confidence in a European recovery boosted the euro to a two-month peak against the dollar, while U.S. oil ended a choppy session lower, stalling just above $89.
ICE Brent's premium to U.S. benchmark West Texas Intermediate crude reached $8.59 intraday, its highest since February 2009, boosted by strong emerging market demand, tight North Sea crude supplies and a trading firm's control of double-digit North Sea cargoes.
The oil complex was supported by news that German business morale jumped in January to its highest level in 20 years, according to the Munich-based Ifo economic institute. while French data also showed rising confidence.
The euro, also helped by Asian demand, rose to a two-month high versus the dollar.
U.S. crude oil prices slipped as the crude inventory rise reported on Thursday, the first in seven weeks, had investors concerned that more stock builds could be coming as deliveries delayed because of year-end tax issues start to arrive.
In London, ICE Brent crude for March rose $1.02 to settle at $97.60 a barrel, but lost 1.06 per cent over the week. Brent reached $99.20 intraday last Friday, as the February crude contract expired.
U.S. crude oil for March delivery fell 48 cents to settle at $89.11 a barrel, trading from $88.87 to $90.22. U.S. crude posted a 2.65 per cent loss for the week.
"A combined move with the weaker dollar and improving business confidence in Germany is supporting oil. On Thursday, we saw a very strong support point... We could see a test of the upper level, which is $99.20 for Brent," said Thorbjorn Bak Jensen, an analyst at A/S Global Risk Management Ltd.
U.S. gasoline and heating oil futures rose on Friday, as a Houston refiner started a two-month overhaul of its main gasoline making unit and on forecasts for colder weather.
The U.S. heating oil profit margin, or crack spread, reached $22.54 a barrel, highest since Jan. 20, 2009, when the profit margin reached $25.42.
U.S. crude prices had a sharp price retreat on Thursday as the February contract expired, triggered by the government's report of inventory builds and concerns China may take more measures to cool stubborn inflation, resulting in slower growth in oil demand.
BRENT/WTI
As the Brent/WTI spread soared to a near two-year high, four North Sea Brent oil and gas platforms, which shut down on Saturday, were expected to remain closed for several weeks, platform operator Shell said.
While shutting in significant natural gas production, but only 20,000 barrels per day of crude oil output, the news helped keep bullish sentiment for Brent intact.
Nigeria has raised the official selling price (OSP) for its competing benchmark Bonny Light and Qua Iboe crude oil grades in February to dated Brent plus $1.90 a barrel, up 15 cents from January, a trade source said on Friday.
As the Brent/WTI soars, some analysts were cautioning about the potential for a correction.
"The spread is starting to get rather stretched and when it does get rather stretched there is usually a sharp correction at some point," said Michael Hewson, a market analyst at CMC markets.
Meanwhile, gold prices fell for a second day Friday as a stronger appetite for riskier assets such as equities and an improving economic outlook diminished safe-haven buying, more than offsetting a weaker dollar.
Bullion notched a third consecutive weekly loss, its longest since July, and that called into question the metal's lengthy bull run due to signs that the economic recovery is taking hold and as fears about an European debt crisis have subsided for now.
Gold prices fell Friday as safe-haven demand faded, a day after the metal was pushed down nearly 2 per cent to two-month lows as investors sold bullion together with equities and commodities like crude oil and copper that are perceived as riskier.
"The German IFO today is an indication of ongoing strength and an improvement in the EU economy. The idea that the U.S. and European economies are doing better and less sovereign debt concerns are weighing on gold investor psychology," said Bill O'Neill, a partner in commodities firm LOGIC Advisors.
German business sentiment rose to its highest level in 20 years in January, surging past economists' forecasts on a strong manufacturing sector. The bright European report followed a raft of strong U.S. economic data, including encouraging jobs and housing numbers on Thursday.
Spot gold fell 0.2 per cent to $1,343 an ounce by 2 p.m. EST . U.S. gold futures for February delivery settled down $5.50 at $1,341 an ounce.
Bullion hit a low of $1,337.50, their weakest price since Nov. 18, as financial markets opened in New York. U.S. traders cited an increase in margin requirements for precious metals futures as a reason for the decline.
The latest trade report by the U.S. Commodity Futures Trading Commission (CFTC) showed that net long positions in U.S. gold futures contracts held by speculators dropped sharply by 7 per cent for a second week.
In the previous week, speculators' net longs declined over 12 per cent, suggesting investors liquidated bullish positions and large funds might have exited the market, analysts said.
Silver inched up 0.2 per cent to $27.53 an ounce.
Elsewhere, copper bounced nearly one per cent on Friday, snapping a two-day slide that dragged prices to their lowest level in a month, as the dollar weakened and on worries about more monetary tightening in top-consumer China abated.
Copper prices - down as much as 5 per cent from all-time record peaks at $9,781 per tonne in London this week and $4.4980 per lb in New York earlier this month - found their footing on Friday, as investors reassessed global demand prospects for the industrial metal.
"The market is kind of readjusting itself after selling off on the concerns about tightening by the Bank of China," said Bill O'Neill, partner of LOGIC Advisors in Upper Saddle River, New Jersey.
London Metals Exchange (LME) copper for three-month delivery rose $86, or 0.92 per cent, to end at $9,441 a tonne.
COMEX March copper firmed 3.70 cents to settle at $4.3090 per lb.