Oil edged down on Friday from a six-week high as markets looked to U.S. July employment data for clues on whether the United States could be emerging from recession.

By 1156 GMT U.S. light crude for September delivery fell 54 cents a barrel to $71.40 after briefly touching as low as $70.91.

It settled 3 cents down on Thursday when lower U.S. stocks and a stronger U.S. dollar helped to pull prices off a six-week high of $72.42.

London Brent crude fell 42 cents to $74.41.

It has been a steady slip to the downside most of the morning. The BOE announcement yesterday put a little bit of gloom into the market, said Tony Machacek, a broker with Bache Commodities in London.

On Thursday the Bank of England took a far bigger step than expected to boost Britain's recession-hit economy and stunned markets by expanding its quantitative easing plan to 175 billion pounds from 125 billion.

Oil prices were still on course for their fourth straight up week as economic confidence has grown, boosting investor appetite for riskier assets and knocking back the dollar.

For much of this year, oil prices have correlated closely with stock markets, and Friday's bearishness coincided with weaker equities as investors grew cautious before the U.S. non-farm payrolls data.

The market still looks fairly resilient, analysts at MF Global wrote in their daily energy report.

However, at this stage, much rides on what U.S. equities will do over the next few weeks, as they have indisputably been the upside driver for most commodity complexes.

A Reuters poll on Wednesday showed the U.S. jobless rate might hit a 26-year high of 9.6 percent when July nonfarm payrolls data comes out at 1230 GMT on Friday, high to be sure, but an expected 50,000 fewer jobs lost outright than in June.


Oil analysts also expressed wariness over bearish fundamentals, as U.S. oil inventories have stayed high and global demand remained weak.

In addition to swollen inventories on land, oil stocks have again begun to build up at sea.

The world's biggest independent oil tanker shipping group Frontline on Thursday said around 50 very large crude carriers (VLCCs) were storing nearly 100 million barrels of crude at sea, particularly in the U.S. Gulf and Europe.

Industry sources on Friday also told Reuters Morgan Stanley was expected to store around 2.6 million barrels of gas oil on ships off Europe [ID:nSP471964]

We continue to see sizeable risks to the downside for crude in the near-term as weaker demand for crude will add to already weak fundamentals for the complex, said JP Morgan analysts in a weekly oil report.

That said, our longer-term outlook is considerably more positive as the expected boost in demand for the second half of the year will begin to cut back on commercial inventories around the world.

Oil now costs more than twice what it did in December when it plunged to below $33, though it is still less than half last July's record above $147.

(Additional reporting by Maryelle Demongeot in Singapore, Editing by William Hardy)