Oil extended gains towards $89 a barrel on Friday as traders bought back short positions on expectations that cold U.S. weather would boost fuel demand and after prices failed to break below the $86 watermark.
US light, sweet crude for March delivery; rose 70 cents to $88.81 a barrel by 0656 GMT. Prices fell as low as $86.24 a day earlier, near the lowest in three and a half months, but later rebounded to close 97 cents higher on the day.
London Brent crude was trading 86 cents higher at $89.37 a barrel.
"The market is in a slight short-covering mood after finding solid support around $86 this week, but traders are still careful about chasing prices too strongly on rallies," said Tatsuo Kageyama, an analyst at Kanetsu Asset Management in Tokyo.
But he said the fear of a US recession that could dampen oil demand in the world's top consumer -- and reverberate across the world -- was keeping prices well below the record high of $100.09 hit at the start of this year.
Data on Thursday provided further evidence that the US economy may have screeched to a halt.
New applications for US unemployment benefits fell last week, but the number of workers remaining on jobless aid rose to its highest level in more than two years. And big chain stores reported consumers pulled back on spending.
But a short-term demand boost from chillier weather plus supply outages helped offset some of the gloom. Prices fell sharply on Wednesday after US government data showed a big rise in crude and fuel stocks, partly due to unusually mild weather.
"The US Northeast next week looks to be cold, and like the prices for propane and natural gas yesterday oil may get a boost," said Ken Hasegawa of brokerage company NewEdge.
Accuweather forecast temperatures in the Northeast would be above normal for the next few days, then below normal on average next week, while the National Weather Service eight-to-14-day outlook issued Wednesday called for normal or below normal temperatures for the northern half of the country.
Analysts and traders said prices had also been supported by production shutdowns in the North Sea and in Nigeria, where Royal Dutch Shell said on Thursday it was halting 130,000 barrels per day because of pipeline leaks.
Exxon Mobil Corp has moved to freeze up to $12 billion in Venezuelan assets around the world as the US company fights for payment in return for the state's takeover of a huge oil project last year, the boldest action yet against the resource nationalism that analysts say may impede future output.
World oil demand growth is set to lose momentum in 2008 as high prices and an economic slowdown in industrial nations hit demand, according to a Reuters poll. (Reuters)
Follow Emirates 24|7 on Google News.