NEW YORK (Reuters) - Oil prices rose on Friday in volatile trading after a disappointing U.S. August jobs report weakened the dollar and bolstered expectations for stimulus from the U.S. Federal Reserve, even while denting the outlook for petroleum demand.
Brent and U.S. crude futures posted small weekly losses, after five straight weekly gains and a surge of more than 9 percent in August.
U.S. nonfarm payrolls increased by only 96,000 last month, the Labor Department said on Friday, below the forecasted rise of 125,000. While the unemployment rate dropped to 8.1 percent from 8.3 percent in July, it was largely due to Americans giving up the search for employment.
Oil prices received a lift from expectations that the jobs report increases the likelihood that the U.S. Federal Reserve's two-day policy meeting next week will result in a third round of monetary stimulus, known as quantitative easing or QE3.
Additional stimulus is expected to weaken the dollar, which is usually supportive to dollar-denominated commodities like oil. The dollar was broadly weaker on Friday, with the dollar index .DXY down nearly 1.0 percent, with the U.S. currency dropping to a near four-month low against the euro. <USD/>
Brent October crude rose 76 cents to settle at $114.25 a barrel, having swung between $112.34 and $114.65.
For the week, Brent slipped 32 cents.
U.S. October crude rose 89 cents to settle at $96.42 a barrel, below the 200-day moving average of $96.62, after trading from $94.08 to $96.74 during the session.
For the week, U.S. crude lost only 5 cents.
Money managers raised their net long U.S. crude futures and options positions in the week to September 4, the Commodity Futures Trading Commission (CFTC) said on Friday.
U.S. RBOB gasoline futures rose nearly 1 percent. Even at the session high of $3.0541 a gallon, there was a significant gap still to be closed to reach $3.1056, where the September contract expired and went off the board last Friday.
U.S. heating oil futures rose, but only 0.2 percent.
"It was a decidedly negative report due to the meager number of jobs created in August and the downward revision for the two prior months," said John Kilduff, partner at Again Capital LLC in New York.
"However, the data are clearly disappointing enough to allow for a third round of quantitative easing, which lends support to commodity prices and would enable a run at $100 per barrel for (U.S.) crude," he added.
China's approval of a multibillion-dollar infrastructure program helped push key industrial feedstock copper, another dollar denominated commodity, to its highest price in nearly four months. <MET/L>
MULLING RESERVES RELEASE
The possibility that strategic oil reserves may be released by the United States and other major oil consumer governments hemmed in oil prices, after U.S. government officials met oil market experts on Thursday as the White House considers the merits of another release.
While oil companies work to restore energy operations on the U.S. Gulf Coast after Hurricane Isaac, the government's report on Wednesday showed domestic crude oil stockpiles, excluding the SPR, fell 7.43 million barrels in the week to August 31. <EIA/S>
U.S. regulators said 36.35 percent of daily oil production in U.S.-regulated areas of the Gulf of Mexico remained shut on Friday, an improvement of 6.63 percentage points from Thursday.
MIDDLE EAST UNCERTAINTY
The threat persists that violence in the Middle East could escalate and disrupt flows of oil from the region.
A blast outside a mosque in Syria's capital on Friday killed five security personnel and wounded others.
Britain, France and Germany called on their European Union partners on Friday to impose new sanctions against Iran over its nuclear program.
The EU's embargo on Iranian crude is in its third month.
Canada suspended diplomatic relations with Iran, closing its embassy in Tehran and giving Iranian diplomats in Canada five days to leave the country, Foreign Minister John Baird said, calling Iran the biggest threat to global security.