Volatile oil ends higher, eyeing Europe and euro

NEW YORK Fri May 20, 2011 4:20pm EDT

An employee holds a gas pump to refill a car at a petrol station in central Seoul April 6, 2011. REUTERS/Lee Jae-Won

An employee holds a gas pump to refill a car at a petrol station in central Seoul April 6, 2011.

Credit: Reuters/Lee Jae-Won

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NEW YORK (Reuters) - Oil rose in thin, volatile trading on Friday, bouncing back from sharp mid-session losses as traders struggled to set a clear direction in a market buffeted by new euro zone concerns and mixed signals on demand.

The expiration of the June U.S. crude contract, technical trading on either side of the 100-day average, below-normal volume and choppy dealings in the dollar all contributed to another erratic day for oil, marked by a wide range that analysts say underscored traders' lack of conviction.

Prices tumbled earlier in the day as the dollar rallied on news that Norway suspended a payment grant to Greece for failure to comply to commitments and a ratings downgrade by Fitch. Concerns that Spanish regional elections at the weekend could result in bad bank news added to the euro's losses.

But crude later reversed course to rise, causing the dollar to pare gains as the two markets took turns driving the inverse correlation that has been pronounced in recent weeks.

The later move left traders struggling to pin down a cause, although some saw broader gains across the commodity complex as evidence that investors were tip-toeing back in. Gold, copper and corn all rose by about 1.5 percent.

"Any commodity can serve as a store of value if you are worried about currencies you were holding and while gold is the easiest to hold, its price is very high and that may have benefited oil," said Bill O'Grady, chief investment strategist at Confluence Investment Management in St. Louis.

Brent crude for July delivery rose 97 cents to settle at $112.39 a barrel, bouncing off a low of $108.60 posted after sliding below the 100-day moving average of $109.76.

For the week, front-month Brent fell $1.44, or 1.27 percent,

The expiring U.S. June crude contract rose $1.05 to go off the board at $99.49 a barrel, after falling as low as $95.99. Despite the rally it ended the week down 16 cents.

The early slide failed to challenge the $94.63 low from May 6, where oil found at least a temporary floor after retreating from a 2-1/2 year peak of $114.83 on May 2.

The U.S. July crude rose $1.17 to settle at $100.10, bouncing from its intraday low of $96.35.

FUNDAMENTALS AND VOLUME

The oil market also struggled to absorb conflicting accounts of oil demand in the world's biggest consumer.

Although diesel usage surged some 15 percent in April, gasoline demand fell by 5 percent, the American Petroleum Institute said. And the number of highway miles driven fell by 1.4 percent in March, the first decline in 13 months.

Several brokers and traders said short-covering ahead of the weekend added to the bounce.

U.S. total crude trading volume at 16 percent below the 30-day average Brent volumes 22 percent under enabled the price volatility, traders said.

"Thin volumes had had to play a role in those kind of swings," said O'Grady.

News that al Qaeda plotted to hijack or sink oil tankers last year to prompt a spike in prices and trigger an economic crisis in the West also helped oil rebound, trading sources said.

The threat to U.S. oil infrastructure from flooding along the Mississippi River and other waterways in the region remained supportive, although only a small amount of refinery capacity had been affected as of Friday and major plants are now thought to be largely out of harm's way.

(Reporting by Robert Gibbons and Gene Ramos in New York, Christopher Johnson and Manash Goswami in Singapore)

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