Brent crude rose to a four-month peak on Friday, with traders citing optimism about the global economic recovery, while Brent's premium over U.S. oil futures widened nearly $1 a barrel in heavy spread trading.
Brent's premium to West Texas Intermediate rose on expectations of swelling inventories at Cushing, Oklahoma, the delivery point for U.S. oil futures.
The spread had narrowed with the start up of the expanded Cushing-to-Texas Seaway pipeline, which had been expected to draw down Midwest inventories bulging from rising North American production.
But traders said stocks at Cushing could keep building because the pipeline may not be able to run at full capacity of 400,000 barrels per day until the second half of the year. This should keep pressure on U.S. crude prices.
"The realization that the Seaway pipeline reversal is an answer to almost none of the crude oil backlog issues in the Midcontinent is weighing on WTI prices outright and especially in relation to Brent crude oil prices," said John Kilduff, partner at Again Capital LLC in New York.
"It's as if they built a pipeline to nowhere. There was a bout of irrational pipeline exuberance."
Some market players said Friday's spread move may have been exacerbated by a hedge fund adjusting a major position to take this into account.
Brent rose for the third straight week and posted its biggest weekly gain in two months. U.S. crude rose for an eighth straight week, matching a similar winning streak in July-August 2004.
Brent futures for March rose to a high of $117.07 a barrel, its highest since September. Front-month Brent settled up $1.21 to $116.76 a barrel. For the week, Brent futures gained $3.48, or 3 percent.
U.S. crude gained 28 cents to trade at $97.77, erasing earlier losses. For the week, U.S. crude futures gained $1.89, nearly 2 percent.
Trading volumes were heavy, with U.S. crude volumes nearly 60 percent over the 30-day moving average, while Brent volumes were more than 40 percent over that average.
During the U.S. trading day the discount of the front-month U.S. contract to Brent crude futures widened out to over $19 a barrel, the highest level since before the Seaway line reopened with expanded throughput capacity earlier this month. The spread between WTI and Brent settled at $18.99 a barrel, compared with $18.06 on Thursday.
Positive U.S. employment numbers boosted crude prices in early U.S. trading, easing worries after separate data this week showed the world's top economy contracted in the fourth quarter.
U.S. employers added 157,000 jobs to their payrolls last month, the Labor Department said. The U.S. unemployment rate edged up 0.1 percentage point to 7.9 percent and revisions showed employment gains in the prior two months were bigger than initially reported.
Global manufacturing activity also rebounded in January, its biggest monthly rise since August 2009 according to a business survey.
U.S. stocks climbed to a five-year high. The Dow Jones industrial average hit 14,000 for the first time since mid-October 2007 and the S&P hit its highest point since December 2007.
Meanwhile, a pair of surveys on China's factory output offered diverging views on the pace of the recovery of the world's second largest oil consumer.
The official purchasing managers' index (PMI) missed market expectations, while a private PMI survey released by HSBC showed growth among manufacturers quickening to a two-year high.
Worries about Brent supply due to conflict in the Middle East also pushed its price up. A suicide bomber killed a Turkish security guard at the U.S. embassy in Ankara on Friday.
The attack further increased tensions in the region after Israel bombed targets in Syria earlier in the week.
(Additional reporting by Robert Gibbons in New York, Ron Bousso in London and Jessica Jaganathan in Singapore; Editing by Christopher Johnson, Leslie Gevirtz and David Gregorio)