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Brent futures held around $108 a barrel on Friday, as uncertainties surrounding the global economic outlook weighed on prices, while a showdown between Israel and the Palestinians stoked worries about supply.
Oil investors are worried that Arab producers may be drawn into any possible Israeli-Palestinian conflict, which may hurt their supply lines. Brent has held above $100 for most of this year on fears of disruption from the Middle East with a weak demand outlook capping further gains.
Brent crude gained 11 cents to $108.12 a barrel by 0532 GMT. The December contract, which expired on Thursday, settled up $1.37 and the more actively traded January dipped 47 cents. U.S. oil fell 4 cents to $85.41.
"The global economy has got issues and geopolitical tensions, particularly in the Middle East, are rising," said Jonathan Barratt, chief executive of Barratt's Bulletin, a Sydney-based commodity research firm. "That means a status quo for the oil market for some time."
Barratt expects the U.S. contract to be at around $93 a barrel by the end of the year and Brent at $115.
An oil market trading in a tight range may be good for the global economy struggling to revive growth because that would mean stable prices of a key input, Barratt said.
"People aren't chasing it, people aren't selling it - and that means a stable primary input price," he said.
Brent may consolidate in a range of $107.39-$108.20 per barrel for one trading session before seeking its next direction, while signals are mixed for U.S. oil as the drop on Thursday has disrupted a rebound from the November 7 low of $84.05, according to Reuters technical analyst Wang Tao.
The unrest in the Middle East has resulted in Brent futures rising more than the U.S. benchmark, which is weighed down by U.S.-centric factors such as higher inventories, weak demand growth outlook and a potential financial crisis.
That widened the price difference between the two crudes out to $26 a barrel in the previous session, the most since October 2011, and the spread may stay wide for sometime. It was at around $22 during Asian hours on Friday.
"While an easing of Middle East concerns will invariably lead to a narrower spread, we feel that the extent of this narrowing is more limited than a month ago," analysts at Standard Bank said in a report.
"The main impetus for a sustained narrowing will have to come from support in the WTI market - support which does not look as promising anymore."
U.S. crude inventories rose last week while gasoline and distillate stockpiles fell along the East Coast where the fuel distribution system was still recovering from Hurricane Sandy, the U.S. Energy Administration said.
Crude stockpiles in the world's largest consumer rose nearly 1.1 million barrels, below estimates for a build of 1.9 million barrels. Overall distillate stockpiles fell by 2.54 million barrels versus a 1.3 million barrel drawdown forecast.
Investors are worried about a supply disruption from the Middle East as tensions between the West and Iran over its controversial nuclear programme remain high. Tight sanctions by the United States and Europe have more than halved the OPEC-member's oil exports and Tehran has constantly threatened retaliation.
Iran could soon increase uranium enrichment in an underground nuclear plant, diplomats say, a development that may further complicate efforts to resolve peacefully a dispute over Tehran's atomic ambitions.