SINGAPORE, Oct 14 (Reuters) - Brent crude rose toward $112 on Friday, heading for a second-straight weekly increase, on bets that China may loosen credit as inflation cools and boost fuel demand in the world's second largest oil consumer.
Inflation in China edged down to 6.1 percent in September, a sign the central bank may at least put on hold further tightening of its monetary policy that has slowed economic growth and fuel consumption.
Less price pressures may allow the Chinese central bank to look at easing monetary policy, said Jeremy Friesen, a Hong Kong-based analyst at Societe Generale.
"If that helps consumer spending and prevents a slowdown in construction, it would be positive for global commodities," he added.
November Brent crude LCOc1 rose 63 cents to $111.74 a barrel by 0635 GMT, putting it on track to gain more than 5 percent this week ahead of the contract's expiry at the end of Friday. U.S. crude CLc1 rose 64 cents to $84.87.
Brent's premium to U.S. crude CL-LCO1=R rose to a record of $27.26 a barrel earlier on Friday, up from a previous high of $27.23 on Sept. 6.
Monetary tightening means China is expected to post slower economic growth in the third quarter than the previous three months when it reports data next week.
A sudden worsening in Europe's debt crisis could further mar China's growth outlook, strengthening the case for Beijing to loosen policy before it is confident it has won the inflation fight.
Pledges from European leaders early this week have briefly soothed fears the debt crisis will escalate.
"Europe is starting to take the crisis a bit more seriously," Friesen said. "Hopefully we don't have to muddle through to 2012."
U.S. CRUDE STOCKS UP
U.S. crude stocks rose more than expected last week as imports rose, while product inventories surprised with larger- than-expected drawdowns, U.S. Energy Information Administration data showed.
"In our opinion, the most bullish number out of the DOE was a 2.93 million-barrel draw in distillates, the second largest draw ever seen for this time step," analysts at the Schork Report said in a note.
The oil industry has a gloomy economic outlook, expecting recession in the next year, less demand for fuel and lower oil prices, a survey of delegates to a major industry conference showed this week.
This is reflected in U.S. crude options activity which is focused more on managing volatility and liquidating length on Thursday than initiating new positions, traders said.
Market players squared positions and took profits ahead of the November crude options expiry on Monday, and some hedgers were seen starting to reset their books for 2012.
The United States will release retail sales and confidence data later on Friday, providing indication on its economic health.
Investors also await a G20 preparatory meeting on Friday and Saturday, although it is not expected to announce market-moving actions.
The EU Summit will follow on Oct. 23-24, ahead of a G20 meeting on Nov. 3. (Editing by Michael Urquhart)
