UPDATE 5-Oil rises above $109 on demand growth prospects
* U.S. crude nears parity with Brent
* U.S. jobs, factory data offer bright signs for economy
* Bernanke says Fed flexible on bond buying
(Updates prices, adds quote)
LONDON, July 19 (Reuters) - Oil on both sides of the Atlantic climbed above $109 a barrel on Friday, after encouraging economic data and a sharp decline in U.S. crude stockpiles signalled stronger demand for fuel in the world's top oil consumer.
The bullish combination has helped push U.S. crude, commonly called West Texas Intermediate or WTI, to a 16-month high of $109.32, putting it at near parity to Brent compared with a discount of $23 in February.
Brent for September posted more modest gains, trading up 31 cents at $109.01 by 1304 GMT, while U.S. oil for September was up 90 cents at $108.71 a barrel. Front-month August in U.S. crude was at $109.17, up $1.13.
The convergence between the two crude benchmarks has occurred as increased pipeline capacity reduces the glut of oil at the WTI delivery point of Cushing, Oklahoma. Stocks there have fallen to 46 million barrels from 52 million in January.
"Parity is right around the corner with WTI trading at a premium to Brent likely to happen in the not too distant future," said Dominick Chirichella of Energy Management Institute.
"The fundamentals are continuing to drive the spread with assistance from the technicals."
But analysts say oil's rally, nearly 10 percent for Brent and 17 percent for U.S. crude in less than four weeks, may be overdone given ample global supplies.
"We do not believe this situation will last, given the fact that U.S. oil production is still rising and stocks are still high in the U.S.," Commerzbank said in a note.
New claims for U.S. jobless benefits fell in the world's biggest economy and key factory data improved, which lent support to the price of oil. A third straight week of sharp declines in U.S. crude stocks kept losses in check.
Oil prices, and that of other riskier assets, have also been boosted by Federal Reserve Chairman Ben Bernanke's testimony before Congress in which he reiterated that the Fed would only start phasing out its stimulus once it is sure the economy is strong enough to stand on its own.
This helped soothe markets, which saw a brief but fierce global market sell-off last month when Bernanke outlined the Fed's plans to curtail its so-called quantitative easing.
Optimism about a revival in oil demand growth also came from news that China had urged local governments to speed up spending in this year's budget to support economic growth.
A recent series of weak data from the world's second-biggest economy had raised concerns global oil demand growth will fail to meet already pared-down expectations.
(Additional reporting by Manash Goswami in Singapore; Editing by Anthony Barker)