Oil rises, heads for weekly gain as Iran tensions support

NEW YORK (Reuters) - Crude oil prices rose more than 1 percent on Friday, heading for a weekly gain on lift from lowered expectations that an agreement on Iran's nuclear program will result in a rapid return of more Iranian barrels to the market.

Strong U.S. refined products futures on Friday also provided a boost, brokers and analysts said.

Brent crude was up $1.06 at $57.63 a barrel at 11:39 a.m. EDT, near its 50-day moving average at $57.61 and having reached $58.86.

U.S. crude was up 60 cents at $51.39, having traded from $50.08 to $51.60.

After posting a loss last week, Brent was on track for its third weekly gain in four weeks and U.S. crude was on pace to post a fourth consecutive weekly rise.

"The latest agreement with Iran does not open the floodgates for a significant return of Iranian oil on the market as many had feared," said Harry Tchilinguirian, head of commodity markets strategy and oil strategy at BNP Paribas.

World powers and Iran announced the interim accord last week. But on Thursday, Iranian leaders said all sanctions on Iran must be lifted on the same day as any final agreement, while the United States maintains sanctions would be lifted gradually.

Evidence this week of ample supplies, including a glut of unsold Nigerian crude, the biggest jump in U.S. inventories since 2001 and Saudi Arabian output reaching a record high, limited crude oil's rally. [EIA/S]

Brent's price has plunged from $115 hit last June, a drop that deepened after OPEC in November decided not to cut output, choosing to defend market share instead.

Crude received support this week from expectations of stronger demand after data from the United States and Germany bolstered the view that world growth is slowly perking up.

Subdued Chinese inflation fueled talk of additional stimulus from Beijing, adding to supportive sentiment. [MKTS/GLOB]

Oil managed to rally even with a stronger U.S. dollar , which tends to weigh on dollar-denominated commodities.

U.S. ultra-low sulfur diesel (ULSD) futures , trading over 2 percent higher, has been "scooping up some support off seasonal agricultural demand and steady export trade," Jim Ritterbusch, president at Ritterbusch & Associates, said in a research note.

U.S. RBOB gasoline rose about 1.6 percent as it recovers from a 12-cent plunge on Wednesday after government data showed an unexpected inventory rise last week. [EIA/S]

(Additional reporting by Alex Lawler in London and Florence Tan in Singapore; Editing by Marguerita Choy)