Brent oil futures climbed above $104 on Thursday, responding to dollar declines, while a jump in U.S. jobless claims capped gains as they added to the bearish demand outlook.
Initial claims for state unemployment benefits jumped by a bigger than expected 32,000 to a seasonally adjusted 360,000, the U.S. Labor Department said on Thursday, in the biggest rise since November.
Figures from Wednesday detailing a sharper-than-expected drop in U.S. factory output and evidence of ongoing EU recession continued to have an impact on the market.
Brent was up 50 cents to $104.18 a barrel by 1300 GMT, after rising on Wednesday by $1.08, the most in dollar terms since May 6. U.S. oil rose 48 cents to $94.78.
The spread between U.S. benchmark West Texas Intermediate and European Brent widened for a third day, reflecting a costly rail transport bill for U.S. refiners.
"For the last two days, Brent has increased its premium to WTI, taking into consideration rail costs in the U.S." Olivier Jakob at consultancy Petromatrix said, "U.S. crude differentials had weakened, meaning that Brent-WTI was too narrow."
An uncertain global economic outlook at a time when supplies are rising has made it difficult for prices to move higher.
The dollar reached levels near a six-week high against the euro on prospects for more monetary easing in the euro zone and scaled back asset-buying in the United States.
U.S. crude stockpiles declined by 624,000 barrels during the week to May 10, according to data on Wednesday from the Energy Information Administration (EIA). Analysts had forecast on average a 300,000 barrel crude build.
Investors did not take the drawdown as an indicator of a change in trend, however, because gasoline and distillate inventories jumped well above expectations.
"U.S. stocks are building, so demand is relatively weak, putting pressure on refining margins in Europe," Jakob at Petromatrix said.
Gasoline stockpiles on the East Coast rose by 1.8 million barrels in the week as the nation heads into the summer driving season and were up nearly 10 million barrels from the same time last year.
"For the first time in six weeks, gasoline stocks built, unexpectedly halting the seasonal stock decline," BNP Paribas analysts said in a note.
"Stocks are now near the top of the narrow five-year range for this time of year, having previously been trending downwards at usual seasonal rates and at levels marginally above normal."
Oil prices drew some support from news that the United Nations' nuclear agency failed to persuade Iran to let it resume an investigation into suspected atomic bomb research, reviving worries about supply disruption. (Additional reporting by Manash Goswami in Singapore; editing by Jane Baird and Keiron Henderson)