Oil rose on Friday, with Brent crude surging past $123 a barrel, as improving U.S. consumer confidence and industrial production eased concerns about rising fuel costs.
Concerns about the impact of rising fuel costs on the economic recovery and consumption hit prices earlier in the week, knocking Brent off 32-month highs. It had risen to $127 a barrel on expectations the conflict in Libya would lead to a prolonged disruption of the OPEC nation's supplies.
A U.S. government report showed underlying inflation pressures remained contained in March, while a survey showed April consumer sentiment rose more than expected. Investors have been concerned higher energy and food costs would slow consumer spending.
A gauge of manufacturing in economic powerhouse New York State rose in April to the highest level in a year and employment improved, the New York Federal Reserve said Friday.
U.S. crude futures rose $1.55 to settle at $109.66 a barrel, marking the third straight day of gains although the contract was off 2.8 percent for the week. ICE Brent crude for June, the new front-month contract, rose $1.45 to settle at $123.45 a barrel.
Consumer confidence and supportive Empire State manufacturing data helped turn the market more positive and China's growth, while slightly slower, is still chugging along, said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.
China's gross domestic product grew by 9.7 percent in the first quarter from a year earlier, off the 9.8 percent growth rate in the last quarter of 2010 but ahead of the 9.5 percent pace that analysts had expected.
Volumes were light, with about 267,000 lots of Brent traded by late afternoon, 43 percent below the 30-day average. U.S. crude trade was down about 22 percent from the 30-day average at 528,000 lots, although overall activity for the week was stronger than in recent weeks.
In the week to April 12, money managers cut their net long positions in crude futures and options by 23,718 positions in the week as prices fell, according to the Commodity Futures Trading Commission.
Investors appeared to brush off the latest Goldman Sachs recommendation to prune commodities portfolios, after a note earlier in the week from the bank warning of a correction in commodities markets sent oil lower.
U.S. bank Goldman Sachs on Friday recommended investors go underweight commodities for three to six months, after the sharp price rises so far this year.
Oil prices have pushed ahead of supply and demand fundamentals and near-term downside risk has risen after prices climbed to exceptionally high levels, Goldman told clients in the latest note, while it maintained its outlook for rising oil prices over a longer, 12-month horizon, on growing global fuel demand.
Brent prices have rallied from around $94 at the start of year due to the unrest in Libya and the Middle East, and concerns that it could spread to larger oil producers such as Saudi Arabia.
(Reporting by Joshua Schneyer, Robert Gibbons and Matthew Robinson in New York; Christopher Johnson in London: Florence Tan in Singapore; Editing by David Gregorio)