NEW YORK (Reuters) - Oil rose on Friday on lower supplies for a Canadian export pipeline and Wall Street’s advance on favorable results of a stress test on European banks, which offset a rash of weak U.S. economic data.
Oil got an early lift after Google and Citigroup reported earnings. Crude also got support from short-covering ahead of the weekend, plus trading of options on the New York Mercantile Exchange, market players said.
“There is pre-weekend short-covering going on as nobody wants to be short at this time with so many things going on,” said Phil Flynn, analyst with PFBEST Research in Chicago.
Wall Street’s early support to the oil market was partly dented after data showed U.S. consumer confidence plummeted in early July to its lowest level in more than two years and factory output in New York State stalled in June. The data dimmed hopes for a quick economic rebound in the second half.
Stalled negotiations between President Barack Obama and Republican lawmakers to avoid a government default also prompted concern in financial markets.
Later, the euro rose against the dollar after the number of European banks that failed the stress test was within expectations.
In late trading, the greenback was down 0.12 percent against a basket of currencies. .DXY. Weakness of the dollar usually increases commodities investors’ appetite for risk.
U.S. crude for August delivery settled at $97.24 a barrel, gaining $1.55 and rising for a third straight week. The September contract closed at $97.60, up $1.49, or 1.55 percent.
In London, ICE Brent for September delivery, the new front month, closed at $117.26, up $1. For the week it posted a $1.07 loss, after gaining two consecutive weeks.
The premium of Brent to U.S. crude futures narrowed to $19.66, from more than $22 on Thursday, on news that TransCanada Corp will cut nominated crude volumes on its Keystone pipeline to the United States from Canada by 20 percent next month due to maintenance.
The day’s volumes were thin, with U.S. crude trading 500,7300 contracts as of 3:25 p.m. EDT, nearly 28 percent below the 30-day average. In London, Brent crude traded 281,006 contracts, 49 percent below the 30-day average, according to Reuters data.
The market also weighed the possibility of a second round of releases by members of the Paris-based International Energy Agency of emergency oil reserves after an initial injection of 60 million barrels announced on June 23.
However, Germany and Italy were likely to oppose a second infusion and that could block a further release as full backing of all 28 IEA members is needed for such a decision to stick.
Oil prices rose on Wednesday after Federal Reserve Chairman told a House congressional panel that the central bank stood ready to ease monetary policies if the economy weakens further.
But on Thursday prices fell back after Bernanke, in a separate testimony to a Senate panel, doused expectations of a new round of easing, dubbed QE3, saying the Fed was not yet ready to do so and citing recent inflationary pressures.
With Friday’s crop of unfavorable economic data, however, some market pundits have raised the argument that those bleak reports precisely could be the fodder for QE3.
“In my view, the disappointing economic data, the Empire Manufacturing Index and Consumer Confidence, would seem to support and give the Federal Reserve cover for another round of quantitative easing and its commodity inflation effects,” said John Kilduff, partner at Again Capital LLC in New York. (Additional reporting by Claire Milhench and Ikuko Kurahone in London, Alejandro Barbajosa in Singapore; Editing by David Gregorio)