Oil climbed toward $73 on Friday after snapping a two-day fall a day ago from 10-month highs, boosted by better-than-expected GDP and jobs data in the United States that signal the economic recovery is on track.
Crude oil prices were also given a lift by a weaker U.S. dollar versus the euro and the commodity-linked Australian dollar, as well as by a late rebound on Wall Street, but were tempered by falls in Chinese stocks.
U.S. crude for October gained 34 cents to $72.83 a barrel by 0637 GMT, rising further after jumping $1.06 on Thursday. Prices had fallen as low as $69.83 earlier the previous day on worries about high U.S. crude and heating oil stocks and weak demand, retreating from a high of $75 this week.
London Brent crude rose 22 cents to $72.73.
People are still looking at the stock markets and the weaker U.S. dollar against the euro, but the market still lacks clear direction, said Ken Hasegawa, a commodity derivatives sales manager at broker Newedge in Tokyo.
A lot of people are expecting the economy to go well and the stock market to rise further, but I cannot be so optimistic about the economy. Though it has reached a bottom, real recovery will take two to three years -- I don't see a V-shaped recovery.
Analysts expect oil prices to hold firmly in the $70-75 range for some time.
The less-than-expected contraction in the U.S. economy in the second quarter, despite a record drop in inventories, and fewer workers filing new claims for jobless benefits, also cheered other commodities, including industrial metals such as copper.
Oil's recovery and the weaker dollar -- which later edged up after the sell-off -- also supported gold, bought as a hedge against inflation.
Traders will now watch the Michigan business sentiment survey on Friday for signals that the economy is truly healing, and eye British, French, Swedish and Italian data for clues on how the Eurozone recovery is developing.
Asserting the cautious view on the economy and its impact on fuel demand, JP Morgan said in a report:
Despite our confidence in the recovery process over the next six months, there is precious little indication from the energy side that industrial activity in the U.S. is recovering.
Gasoline demand remains weak (and may even be declining), jet-fuel has troughed at a low level, and the middle distillate market remains on a disturbingly aggressive downward path.
In Asia, investors continued to watch moves by China to curb lending and overcapacity, which is still sending chills among equities investors. Shanghai stocks <.SSEC> lost over 2 percent and Hong Kong 0.5 percent, as banks fell on reports that August lending on the mainland had shrunk, trimming market liquidity.
Oil also has yet to receive much support from the 2009 Atlantic hurricane season.
Tropical Storm Danny weakened in the Atlantic Ocean on Thursday and was no longer expected to become a hurricane, but edged closer to the U.S. coast on a path that could take it to Canada's Atlantic provinces by Sunday.
(Editing by Ben Tan)