Oil holds near $108 on U.S. economy, supply worries

Oil held around $108 a barrel on Friday, supported by fresh signs of a strengthening U.S. economy and concern of potential supply disruptions in Iran and Iraq. New U.S. claims for unemployment benefits dropped to their lowest in 3-1/2 years, a government report showed, while consumer sentiment in the world's biggest oil consumer improved in December to the highest in six months. Brent crude climbed 2 cents to $107.91 a barrel by 0905 GMT. U.S. crude gained 35 cents to $99.88. "The highlight is the continuation of good data on the U.S. economy. China also seems to have managed to orchestrate a soft landing, which is supportive of oil prices," said Ben Le Brun, market analyst with Options Xpress in Sydney. "The problem child is still Europe." For the week, Brent is poised to rise over 4 per cent, reversing losses in the previous week. The U.S. benchmark is set for a 6.5 per cent weekly gain, after falling the week before. Trading volume is expected to be low as investors stay away from riskier assets ahead of the Christmas break. The U.S. dollar slipped against the euro and a basket of currencies, making dollar-denominated assets like oil cheaper for other currency holders. .DXY European shares were up in early trade, following gains in Asia. Rising tension between Iran and the West over Tehran's nuclear work and in Iraq renewed concern of crude supplies being disrupted from the two OPEC producers. Iran's navy will launch a 10-day war game in the Strait of Hormuz on Saturday, state TV said, raising concern about a possible closure of the key oil shipping route. In Iraq, a wave of bombings that killed at least 72 people in Baghdad on Thursday provided further evidence of a deteriorating security situation just days after the last U.S. troops left the country. Such supply breaks would pose a bigger risk to the market now as oil stockpiles in developed countries have fallen significantly over the past year, JP Morgan analysts said in a research note. "With the Libyan outage, crude spiked about $20 a barrel, but the impact was cushioned by ample inventories. Moving into 2012 however, the global economy does not have this luxury," the bank said.