Oil prices rose on Friday ahead of a U.S. jobs report which could point to a stronger economic outlook for the world's largest oil consumer.
Brent crude futures rose 65 cents to $114.14 per barrel by 1146 GMT. U.S. crude rose 60 cents to $96.13.
Oil lagged other risk-sensitive assets such as equities for a second day, failing to draw as much support from the European Central Bank's bond buying plan unveiled on Thursday, with analysts pointing to high prices limiting demand.
"Oil demand continues to be hurt by high prices, it's difficult to buy at these levels because you are buying demand destruction," said Olivier Jakob, at Petromatrix in Zug, Switzerland.
Data on Thursday showed U.S. private employers added a stronger-than-expected 201,000 jobs in August and new claims for jobless benefits fell last week to the lowest level in a month, an upbeat signal for a struggling labour market.
This helped to ease fears that the closely watched farm payrolls would show a slower increase of jobs than the previous month at 125,000.
POSSIBLE SPR RELEASE
Traders were also watching for a possible release of emergency oil reserves by the United States and other major economies, which could lead to downward pressure on prices.
U.S. government officials met oil market experts on Thursday as the White House considers the merits of another release.
Government officials did not reveal any plans to tap the Strategic Petroleum Reserve (SPR), but voiced concern about tightening U.S. fuel supply and sounded out experts on how energy prices could behave in coming months, sources said.
Analysts said that while the threat of an SPR release was crimping prices, the effect of such a move was not yet reflected in prices.
"The SPR chatter is also not probably not helping the front Brent spreads although Brent-WTI is not really pricing-in yet a SPR release," Jakob at Petromatrix said.
U.S. crude oil stockpiles fell more sharply than forecast last week as Hurricane Isaac hit the U.S. Gulf region and temporarily shut down production platforms, refineries and ports, government data showed on Thursday.
Domestic stocks of crude, excluding oil held in the SPR, fell 7.43 million barrels to 357.1 million in the week ended Aug. 31, the Energy Information Administration reported. Analysts in a Reuters poll had forecast a drop of 5.3 million.
Energy production restarts continued in the Gulf of Mexico after Hurricane Isaac.
Concern that violence in the Middle East could escalate and threaten flows of oil from the region, a factor that has underpinned recent strength in oil prices, returned to the fore.
A blast outside a mosque in Syria's capital on Friday killed five security personnel and wounded several others, state television said.
Britain's Foreign Secretary William Hague urged the European Union on Friday to impose new sanctions on Iran over its nuclear programme, as Israel continues to threaten military action.
"We once again stress most emphatically that the risk of a geopolitical spike remains ever-present and near-chronic," SEB analyst Filip Petersson said in a note to clients. (Additional reporting by Jessica Jaganthan in Singapore; Editing by David Cowell and Keiron Henderson)
