Oil eased below $73 a barrel on Friday, reversing an earlier surge to a seven-week high, as optimism over the pace of demand recovery in top energy consumer, the United States, faded.

Data on Wednesday from the U.S. Energy Information Administration (EIA) showing a surprise 8.4 million barrel plunge in weekly U.S. crude inventories -- against analysts' forecasts for a 1.3 million barrel build -- had buoyed sentiment.

But oil's surge proved short-lived as consensus grew on Thursday that this was due to a fall in imports rather than signs of a genuine rebound in U.S. fuel demand.

The market will scour Federal Reserve Chairman Ben Bernanke's speech before the Federal Reserve Bank of Kansas City Economic Symposium later in the day for more clues on the outlook for the world's largest economy.

By 10:40 p.m. EDT, the new front month contract for October delivery was down 14 cents at $72.77 a barrel, off a seven-week high of $73.24 earlier. It had settled 92 cents lower at $72.91 the previous day. London Brent crude for October was down 21 cents at $73.12.

Oil is on track for a 7.8 percent gain this week.

Wednesday's inventory report was definitely positive for the market, but the data is volatile, and you need to see a trend forming, rather than a one-off decline, before it gets fully priced into the market, said Ben Westmore, commodities analyst with the National Australia Bank.

Although sentiment is positive, it's very shaky, as fundamentals are still weak. You will see more volatility until the fundamentals correct, he said, adding that crude was likely to trade in a range of $70-$75 next week.

So far, U.S. economic signals have been mixed. the index of leading economic indicators rose for a fourth month in July, signaling that the recession was abating, but data released on Thursday also showed the number of U.S. workers filing new claims for jobless benefits unexpectedly rose last week.

As yet, there are also few signs of recovering U.S. fuel demand. Freight traffic across North America fell 17.9 percent in the week ended August 15 from the same 2008 week, a trade group said on Thursday in a weekly report.

Fed Chairman Bernanke's speech at the Federal Reserve Bank of Kansas City Economic Symposium in Jackson Hole, Wyoming at 1400 GMT could shed more light on the economy's pace of recovery from its worst recession in 70 years.

The National Association of Realtors will release existing home sales for July at 10 a.m. EDT. Economists polled by Reuters forecast a total of 5.00 million annualized units versus 4.89 million in June.

Apart from economic data, traders will also take cues from the direction of currency and equity markets.

U.S. stocks rose for a third straight session on Thursday with financial shares leading gains after U.S. manufacturing data and a rebound in Chinese stocks reassured investors.

China equities, viewed by investors as a weathervane of risk sentiment, tumbled to a two-month low earlier this week on disappointment that Beijing had not taken steps to prop up the market after the key index plunged 20 percent from two weeks ago.

The yen rose broadly against major currencies on Friday as investors remained worried about the potential for further weakness in Chinese shares and shied away from risky investments.

On the supply front, increased oil output to a year-high from OPEC president Angola, flouting agreed limits, has helped stack the odds against any formal change when the producer group meets in September.

Without a sharp slide in crude prices, OPEC is likely to leave its output targets unchanged when it meets on September 9, most OPEC delegates and analysts said.