Brent crude prices edged up on Friday and gained more than 5 percent for the week as anxiety over Iran and potential supply disruptions countered the dollar's strength on better-than-expected U.S. jobs growth and concerns about Europe's economy.
Choppy trajectories characterized trading and U.S. crude closed slightly lower, a day after government data showed oil inventories rose last week. But U.S. crude also posted a gain for the first week of 2012 after Iran's threat to shut the key oil-shipping route through the Strait of Hormuz in retaliation for tighter sanctions from the United States and a possible ban on its crude exports to Europe.
"It was a the tug-of-war between concerns about Iran, Nigeria and signs of an improving U.S. economy supporting oil, and the stronger dollar and worry about the euro zone economy on the other side," said Richard Ilczyszyn, chief market strategist and founder of iitrader.com in Chicago.
Ilczyszyn also noted support for Brent as yearly reweighting of commodity indexes next week neared, a reweighting that will favor Brent at the expense of U.S. crude.
"It was a combination of the index thing and the Middle East situation, the Middle East is playing the spread," he said.
Brent February crude rose 32 cents to settle at $113.06 a barrel, having tested support below Brent's 200-day moving average of $112.73 after retreating from its $113.68 intraday peak.
Brent gained 5.28 percent for the week, after slipping slightly last week at in low-volume, end-of-year trading. U.S. February crude fell 25 cents to settle at $101.56 a barrel, but posted a 2.76 percent weekly gain.
Brent's premium to U.S. crude rose above $11 a barrel.
Total crude oil trading volumes continued their post-holiday rebound, with Brent 26 percent and U.S. turnover 19 percent above their 30-day averages in post-settlement trading.
U.S. heating oil and gasoline showed more resilience than crude, posting higher settlements. Brokers and analysts pointed to the credit freeze problems of Europe's independent refiner Petroplus and maintenance at a India's Reliance and Taiwan's Formosa refineries as supportive factors for refined products.
France's leading CGT union is discussing possible action because of the impact the credit problems will have on Petroplus refineries, a senior CGT official said, but the official downplayed the prospect of a new nationwide strike.
The U.S. government reported employment growth accelerated in December, with nonfarm payrolls up more than expected and the jobless rate dropping to a near three-year low of 8.5 percent, more evidence of an acceleration in economic activity in the world's top oil consumer.
U.S. stocks edged lower as equities investors were pulled between the supportive stronger U.S. data and fears about Europe's debt crisis.
Oil initially rose on the jobs report headlines after also being supported by geopolitical risks to supply.
Iran announced plans for new military exercises in the Strait of Hormuz, the latest in weeks of bellicose gestures towards the West as new sanctions threaten Tehran's oil exports.
Western powers have readied a contingency plan to tap a record volume from emergency reserves to replace nearly all the Gulf oil that would be lost if Iran blocks the Strait of Hormuz, according to industry sources and diplomats.
A force majeure on Bonny Light crude exports on Thursday underscored the fragility of supplies from Africa's top exporter, where trade unions are threatening to call a national strike starting on Monday.
"The supply risk regarding Iran is still boiling. On top of this, there is also supply risk from Nigeria," said Carsten Fritsch, analyst at Commerzbank.
Conflict in fellow OPEC-member Iraq added to geopolitical uncertainty. Roadside bombs in Baghdad killed two pilgrims and wounded 17 others headed for a Shi'ite religious rite on Friday, security sources said, as fears of sectarian violence continue to be stoked.
(Additional reporting by Gene Ramos and Jeffrey Kerr in New York, Alex Lawler in London and Florence Tan in Singapore; Editing by Marguerita Choy, Bob Burgdorfer and Sofina Mirza-Reid)