Oil prices moved slightly higher on Friday supported by economic data from Europe, but gains were limited as tensions between the United States and China flared.
China ordered the United States to close its consulate in the city of Chengdu on Friday, responding to a U.S. demand this week that China close its Houston consulate.
The renewed tensions between the world's top two oil consumers stoked worries about oil demand, which already faces headwinds including rising coronavirus cases in the United States.
The resurgent pandemic has darkened the U.S. economic outlook. Some states have reinstated restrictions to curb the latest outbreak, which is expected to decrease fuel consumption.
The number of Americans filing for unemployment benefits hit 1.416 million last week, unexpectedly rising for the first time in nearly four months.
Oil prices could see a near-term correction if a recovery in fuel demand slows further, especially in the United States, Barclays Commodities Research said.
Still, the bank lowered its oil market surplus forecast for 2020 to an average of 2.5 million barrels per day (bpd) from 3.5 million bpd previously.
In the United States, the oil and gas rig count, an early indicator of future output, fell by two to an all-time low of 251 in the week to July 24, according to data on Friday from energy services firm Baker Hughes Co. However, energy firms added one oil rig in the first weekly increase since March.
Softening Friday's market losses, Euro zone business activity grew in July for the first time since the coronavirus pandemic hit, according to IHS Markit's flash Composite Purchasing Managers' Index (PMI). The index is seen as a good indicator of the bloc's economic health.
"The economic data in Europe was much better than anticipated, which would suggest that demand destruction in recent months because of COVID-19 may not have been as bad as people thought," said Phil Flynn, senior analyst at Price Futures group in Chicago.
Meanwhile, U.S. business activity increased to a six-month high in July. U.S. companies, however, reported a drop in new orders as new COVID-19 cases spiked across the country.