| NEW YORK
NEW YORK U.S. crude prices rose on Thursday in volatile trading on lift from a weak dollar that slumped to its lowest level since 2008.
Brent crude posted a small gain after also seesawing and both contracts saw thin trading volumes ahead of a long holiday weekend.
Investors bought oil as a hedge against a tumbling dollar as the dollar index .DXY hit its lowest since 2008 against a basket of currencies and had its all-time low in sight. <USD/>
Disappointing reports on factory activity and U.S. initial jobless claims cast doubt on the pace of U.S. economic recovery and energy demand growth, limiting oil's gains.
Brent crude for June rose 14 cents to settle at $123.99 a barrel, having earlier pushed up nearly $1 to $124.81, the highest since April 11.
U.S. crude for June rose 84 cents to settle at $112.29, bouncing off a session low of $111. U.S. crude posted a 2.4 percent weekly gain.
Thin trading volumes made prices more volatile. Total U.S. crude volumes were 39 percent below the 30-day average, and Brent volumes 46 percent below, according to Reuters data during post-settlement trading.
Oil markets in the United States and Europe will be shut on Friday for a holiday.
U.S. gasoline futures ended at $3.3086 a gallon, the highest settlement since July 2008 as the summer driving season approaches. U.S. heating oil futures ended lower.
"We viewed today's new gasoline highs as essentially keeping this bull move alive as we still see additional gains ahead across the complex," Jim Ritterbusch, president at Ritterbusch & Associates in Galena, Illinois, said in a note.
With gasoline prices already $4 a gallon in some states, the Obama administration unveiled a working group of federal agencies to probe potential fraud in the energy markets.
Brent crude's premium to its U.S. counterpart narrowed by 80 cents to $11.60 a barrel by 4:26 p.m. EDT in post-settlement trading.
"Brent has lost a little momentum in its rally," said Gene McGillian of Tradition Energy in Connecticut. "But it's still got a big advantage to U.S. crude and that spread is unwinding a bit now."
U.S. DOLLAR SWOON
The dollar weakened this week after Standard & Poor's cut its outlook for U.S. government debt to negative, leading some foreign exchange analysts to tout the euro's potential as an alternative reserve currency. <USD/>
A weaker dollar can lift dollar-denominated oil prices by making oil less expensive for consumers using other currencies and by drawing investment away from foreign exchange markets seeking better returns.
Both Brent and U.S. prices had rallied on Wednesday after the U.S. government reported crude oil and refined products inventories fell. <EIA/S>
AFRICA/MIDDLE EAST TURMOIL
Threats to supply in Africa and the Middle East remain and election turmoil in Nigeria and unrest in Yemen kept the uncertainty in focus.
Muammar Gaddafi's forces attacked a rebel-controlled oil pumping station in eastern Libya, an official with an insurgent-run oil company said.
The International Energy Agency's Chief Economist Fatih Birol said oil producing nations need to reassure the market after unrest in the Middle East and worries about supply disruptions pushed crude prices higher.
JOBLESS CLAIMS, FACTORY DATA DISAPPOINT
A note of caution about oil demand was sounded by a report showing that while U.S. initial jobless benefit claims fell last week, they stayed above the key 400,000 level, indicating loss of momentum in any jobs recovery.
Also a concern, the pace of U.S. Mid-Atlantic region factory activity fell more than expected in April. It expanded in March at its fastest pace in 27 years.
(Additional reporting by Emma Farge in London and Francis Kan in Singapore, and Joshua Schneyer and Gene Ramos in New York; Editing by John Picinich and David Gregorio)