Oil prices rose above $44 a barrel Friday on investor optimism that falling U.S. gasoline costs amid the worst recession in decades may increase demand for crude.
Dollar weakness also helped boost oil prices, although gains were limited by news that the U.S. unemployment rate jumped to 8.1 percent in February, up from 7.6 percent in January and the highest since late 1983. Companies cut 651,000 jobs during the month, about as expected by markets.
Benchmark crude for April delivery gained $1.22 to $44.83 a barrel by mid-afternoon in Europe on the New York Mercantile Exchange.
In London, Brent prices were up 99 cents to $44.63 on the ICE Futures exchange.
U.S. gasoline prices averaged $1.933 a gallon Thursday -- $1.245 a gallon cheaper than they were last year -- and falling fuel costs have helped spark some crude demand.
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The government said earlier in the week that crude inventories fell for a second week in three, halting a trend over the previous six weeks that saw inventories jump more than 30 million barrels.
"It's cheap now to fill up your car, and that's starting to have some impact," said Christoffer Moltke-Leth, head of sales trading at Saxo Capital Markets in Singapore. "There's a sense that because crude has gotten cheaper, demand may be picking up. We've seen inventories surprise on the downside."
The Nymex April contract fell $1.77 on Thursday to settle at $43.61 a barrel as the Dow Jones industrial average dropped 4.1 percent to a fresh 12-year low on concern General Motors Corp. may face bankruptcy and worries about Citigroup and other big banks.
The jobs data on Friday, while bleak, failed to surprise investors who were braced for the worst, while revisions to past months showed job cuts have actually slowed gradually since December.
"Overall, another terrible set of labor market figures," said Paul Ashworth at Capital Economics. "The only comfort is that the news was largely in line with the already gloomy expectations and there is just the slightest glimmer of hope that conditions may be improving."
Crude investors have looked to the stock market as a broad measure of investor sentiment on the economy. But oil prices have traded near $40 since December while global stock markets continue to drop.
"Crude is not so directly related to equities as it has been," Moltke-Leth said. "We saw a major sell-off in stocks yesterday, but crude was pretty stable."
Output cuts by OPEC have helped reduce supplies and bolster prices. The Organization of Petroleum Exporting Countries will likely announce another cut production at the group's next meeting on March 15, Moltke-Leth said.
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"Supply and demand are pretty much balanced at the moment," he said.
JBC Energy in Vienna, however, said it does not expect OPEC to make any changes to its production quotas at the upcoming meeting.
Oil prices also gained from a weaker dollar on Friday, as investors sometimes buy into commodities like oil and gold as a hedge against inflation and slumps in the U.S. currency.
In other Nymex trading, gasoline for April delivery rose 0.61 cent to $1.3188 a gallon, while heating oil gained 1.74 cents to $1.1772 a gallon. Natural gas for April delivery was down 6.8 cents at $4.020 per 1,000 cubic feet.
