UPDATE 8-Oil rises $1 as shorts cover on U.K. oilfield glitch
* U.S. non-farm payrolls support short-term rally
* Brent rises near 200-day moving average
* Hedge funds cut bullish bets in crude in latest week -CFTC (Recasts, adds analyst's quote, details on Iran-Russia negotiations, CFTC data)
NEW YORK, Jan 10 (Reuters) - Oil settled higher on Friday, reversing two days of losses, as traders bought contracts to cover short positions ahead of the weekend and reports of production problems at a major U.K. oilfield stoked supply concerns.
U.S. oil settled more than $1 per barrel higher, recouping $2 worth of losses from the previous two sessions, as weaker-than-expected U.S. jobs data raised expectations that the U.S. Federal Reserve may slow the winding down of its commodity-friendly stimulus program.
The Fed's massive bond-buying program has buoyed the economy as well as commodity and equity markets, and the central bank has been assessing how quickly to taper the program based on the momentum of U.S. economic growth.
Brent oil rose on reports of fresh production problems at the North Sea's Buzzard oilfield, two days after an outage at the largest UK oilfield. Buzzard is the largest of the fields that contribute to the Forties crude blend, the most important of the North Sea crudes underpinning the Brent crude benchmark.
"Going into the weekend you have some support with people bottom fishing or at the very least taking some money off the table," said Stephen Schork, editor of the Schork Report in Villanova, Pennsylvania.
Brent crude oil futures settled 86 cents higher at $107.25, ending the week with a slight gain. The contract extended gains by more than $1 to a high of $107.40 in post-settlement trade, just shy of the 200-day moving average of $107.42.
U.S. oil settled $1.06 per barrel higher at $92.72, after rising to a session high of $93.38. The contract, which has sunk from a $100 perch just before the end of last year, settled with a second weekly decline, as the market focuses on ballooning production.
Hedge funds cut their net long U.S. crude futures and options positions in the week to January 7, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.
The spread between the two benchmarks settled at $14.53 after narrowing by nearly $1 from the previous session's settlement to $13.74 in intraday trade.
Brent traded lower earlier in the day, following reports that South Sudan's army had regained a rebel-held region where oil production had been halted by fighting.
In the U.S. market, the unexpectedly weak jobs report triggered a short-term rally from the previous session's 8-month low. U.S. oil futures rose to a session high after the market flirted with technically oversold territory for the first time in two months, but later pared gains.
U.S. employers hired the fewest workers in almost three years in December, though the setback could be temporary amid signs the figure may have been hurt by frigid weather.
The market also kept an eye on the United States' reaction to a potential oil-for-goods deal between Iran and Russia.
Reports that Russia and Iran are negotiating a swap that would let Iran lift oil exports substantially and undermine Western sanctions that persuaded Tehran to agree to a preliminary deal to curb its nuclear program drew ire from U.S. politicians.
Such a deal would boost world supplies and potentially drag on oil prices.
U.S. Representative Elliot Engel, the top Democrat on the House Foreign Affairs Committee called it a "reckless and irresponsible move" on Russia's part. Giving Tehran this type of sanctions relief "severely undermines international efforts to force Iran to take seriously its international nuclear obligations," he said in a press release.
As well, 59 U.S. Senators are co-sponsoring a bill that would place sanctions on Iran if it does not agree to a comprehensive deal later this year or next, calling it a "diplomatic insurance policy."
The U.S. State Department said on Friday that technical talks on Iran's nuclear program had made good progress, but a deal had not been finalized. (Additional reporting by Elizabeth Dilts in New York, Lin Noueihed in London and Jacob Gronholt-Pedersen in Singapore; Editing by Nick Zieminski, Bernadette Baum and Paul Simao)