Oil prices rose on Friday on expectations for improved demand in China after data showed the manufacturing sector of the world's No. 2 oil consumer expanded in December at its fastest pace in more than a year.
With Brent's January crude contract expiring at the end of Friday's session, Brent posted a more than 1 percent weekly gain, snapping two weeks of losses. U.S. crude ended up 84 cents on the week.
"Oil is particularly dominated by Chinese potential demand, and any sign of an upturn in China tends to have a positive effect on oil," said Tony Machacek, a broker at Jefferies Bache in London.
The HSBC flash purchasing managers' index for China rose to 50.9 for December, the highest since October 2011 and the fifth straight monthly gain. A reading above 50 indicates expansion. Contraction is indicated by a figure below 50. [I D :nL4N09O0XF]
Uncertainty and turmoil in the Middle East also supported oil prices, with investors concerned about the potential for supply disruption in the region.
Brent January crude rose $1.24 to settle at $109.15 a barrel, having swung from $108.20 to $109.58. Brent February crude was up $1.72 at $108.18 a barrel.
U.S. January crude closed up 84 cents at $86.73 a barrel, having traded from $86.05 to $86.92. The U.S. January contract expires on Dec. 19.
The benchmark U.S. contract lagged Brent as news emerged of delays at BP Plc's huge refinery in Whiting, Indiana, which is undergoing a revamp. BP has pushed back the start-up date of its revamped 260,000 bpd sour crude unit by 30 to 45 days until mid-April, industry intelligence group IIR Energy reported.
BP declined to comment on the timeline for individual units, but said the overall modernization project at the Whiting refinery remained on track.
U.S. gasoline futures rose sharply, gaining more than 2 percent to close above $2.66 a gallon.
US "FISCAL CLIFF"
A weaker dollar index, measuring the U.S. currency against a basket of currencies, was supportive to dollar-denominated commodities like oil and copper.
The U.S. currency surrendered early gains and fell against the yen after a report on inflation showed U.S. consumer prices dropped in November for the first time in six months. As a result, the Federal Reserve is expected to maintain its ultra-easy monetary policy.
Additional data released Friday pointed to an improving U.S. manufacturing sector. The Fed said manufacturing output rose 1.1 percent in November, the biggest gain since December 2011 and a rebound after the gauge fell in the prior month.
Investors remained cautious because of the stalemate in negotiations between the U.S. Congress and White House over how to avert steep tax increases and spending cuts mandated to start in 2013.
The uncertainty about the U.S. budget talks lessened the supportive effect of reports showing a drop in new jobless claims last week to a near four-year low and a November rebound in retail sales.
MIDDLE EAST TURMOIL
Iran's dispute with the West over Tehran's nuclear program remains a factor in the geopolitical risk premium for oil.
The U.N. International Atomic Energy Agency expects to reach a deal with Iran next month to resume a stalled investigation into suspected nuclear weapon research, the chief U.N. inspector said after returning from Tehran on Friday.
IAEA delegation chief Herman Nackaerts said progress had been made even though Iran failed to grant access to the Parchin military complex.
Sounding a less optimistic note, a member of Iran's nuclear negotiation team said talks between Iran and major world powers were unlikely to yield results.
The dispute over the nuclear program has resulted in U.S.-led sanctions on much of its energy and other sectors and the European Union has banned imports of Iranian oil since July.
In Egypt, supporters and opponents of Egypt's Islamist President, Mohamed Mursi, clashed in Alexandria on Friday before a referendum on a new constitution that has divided the country. (Reporting By David Sheppard. Additional reporting by Shadia Nasralla in London and Florence Tan in Singapore; Editing by Grant McCool and Andre Grenon)