Oil climbed to around $109 a barrel on both sides of the Atlantic on Friday after economic data and a sharp decline in U.S. crude stockpiles signalled stronger demand for fuel in the world's top oil consumer.

The bullish combination helped push front-month August U.S. crude, commonly called West Texas Intermediate or WTI, to a 16-month high of $109.32 earlier in the day. It was up 70 cents at $108.72 at 1333 GMT.

Brent for September posted more modest gains, trading up 18 cents at $108.88, while U.S. oil for September was up 54 cents at $108.35 a barrel.

The convergence between the two crude benchmarks, which shrank to just 6 cents in earlier trade, has occurred as increased pipeline capacity has reduced a glut of oil at the WTI delivery point of Cushing, Oklahoma. Stocks there have fallen to 46 million barrels from 52 million in January.

"Parity is right around the corner, with WTI trading at a premium to Brent likely to happen in the not too distant future," Dominick Chirichella of Energy Management Institute said.

"The fundamentals are continuing to drive the spread, with assistance from the technicals."

But some analysts said oil's rally, nearly 10 percent for Brent and 17 percent for U.S. crude in less than four weeks, may be overdone given ample global supplies.

"We do not believe this situation will last, given the fact that U.S. oil production is still rising and stocks are still high in the U.S.," Commerzbank said in a note.

New claims for U.S. jobless benefits fell and factory data improved on Thursday. Oil market data also showed a third straight week of sharp declines in U.S. crude stocks.

Oil prices, and that of other riskier assets, have also been boosted by U.S. Federal Reserve Chairman Ben Bernanke's testimony before Congress this week in which he reiterated that the Fed would only start phasing out its stimulus once it is sure the economy is strong enough to stand on its own.

This helped soothe markets after a brief but fierce global market sell-off last month when Bernanke outlined the Fed's plans to curtail its so-called quantitative easing programme.

Optimism about a revival in oil demand growth also came from reports that China had urged local governments to speed up spending in this year's budget to support economic growth.

A recent series of weak data from the world's second-biggest economy had raised concerns global oil demand growth will fail to meet already pared-down expectations.