(Reuters) - Brent futures climbed above $98 per barrel on Friday, extending gains on expectations Saudi Arabia would scale back supplies after the OPEC kept its output target unchanged, although uncertainty surrounding Europe's debt crisis capped gains.
The OPEC deal to retain the output limit at 30 million barrels a day implies a cut in supply of 1.6 million bpd. Oil also drew support from news that major central banks stood ready to take steps to stabilize financial markets if cliffhanger Greek elections on Sunday result in turmoil.
That news is giving some comfort to the market that there will be coordinated action if it is required, said Ken Hasegawa, a commodity sales manager at Newedge Japan. That is why we are seeing gains in prices today, but trading will be within a narrow range ahead of the Greek elections.
Brent crude had gained 86 cents to $98.03 a barrel by 0641 GMT. U.S. crude rose 82 cents to $84.73 a barrel, after settling $1.29 higher.
Brent is poised to fall 1.4 percent this week, declining for six out of the last seven sessions. The U.S. contract is set to rise 0.6 percent in its second straight week of gains, coming back from losses made in the previous five.
The European benchmark may trade in a wide range between $95 and $105 over the next few days and U.S. crude around $80 to $90 as investors assess the future of the euro zone and the broader impact it may have on the global economy, Hasegawa said.
Analysts at ANZ said in a report they expect the U.S. benchmark to trade in a range from $80 to $87 in the near term, with a downside bias for the contract to break below $80.
That view, however, would be negated by a clear, pro-bailout victory in Greece, which we think could ignite a relief rally, the ANZ analysts said.
Oil prices have dropped from a $128 peak for Brent in March, and from $110 for U.S. crude, in part because the economic outlook has darkened, but also because of increased Saudi output that in April set a 30-year high of 10.1 million bpd.
To stem a further slide in prices, several in the Organization of the Petroleum Exporting Countries (OPEC) called on Saudi Arabia to cut back to bring collective supply down to the 30 million bpd limit to defend a $100-a-barrel price.
Extra oil from Saudi Arabia has been largely responsible for lifting actual OPEC output to 31.6 million bpd.
Raising output was a deliberate move by Riyadh to counter the possibility that Iranian oil output would fall heavily when a European Union embargo on Tehran starts next month. Iranian production is already down to a 20-year low.
GREECE IN FOCUS
Gains in oil prices were capped, however, as investors remained cautious ahead of the outcome of the Greek elections. A victory for parties opposed to the austerity terms may raise the chances of the country exiting the euro, plunging the region into a deeper crisis and hurting oil demand growth.
It is not just the Greek elections results, said Hasegawa. The important matter is how the next government will handle the country's debt crisis. A lot of money may get pulled out of the markets, not just oil, but overall commodities if the crisis worsens.
Policymakers and investors are worried that if Greece moves out of the zone, it could trigger another global financial market meltdown similar to the one that followed the collapse of Lehman Brothers in 2008.
To tackle any severe strains, central banks from major economies have said they stand ready to take steps to stabilize financial markets and prevent a credit squeeze.
That helped Asian shares and base metals edge up on Friday, while the euro held firm.
Gains were also capped as data showed new claims for U.S. state jobless benefits rose for the fifth time in six weeks, indicating the economy of the world's top oil consumer remains fragile.
(Editing by Himani Sarkar)