Oil prices dipped below $115 a barrel but remained near a three-month high on Thursday Jan. 31, 2013 as optimism about global economic growth boosted demand expectations, while concern over supply continued to underpin strength in the market.

"I wouldn't read too much into it (the dip in oil prices)," said Carsten Fritsch, an oil analyst at Commerzbank in Frankfurt, adding he expected oil prices to make further gains this week.

Losses widened briefly after U.S. employment data showed a rise in initial jobless claims during the session, curbing optimism, but the outlook for the global economic recovery remained broadly positive.

Brent slipped 23 cents to $114.67 a barrel by 1452 GMT, after earlier hitting $115.25, the highest since Oct. 16.

U.S. crude was down 66 cents at $97.28, after reaching a more than four-month high on Wednesday.

"It's not only the U.S. economy, but the global economy that seems to be improving. And we have these ongoing supply risks in the Middle East and North Africa, with more and more countries coming into the spotlight, like Algeria and Egypt."

A surprise contraction in the U.S. economy reported on Wednesday failed to dampen sentiment after the central bank said it would continue its stimulus plan until the outlook was substantially improved.

Data from the euro zone has offered a glimmer of hope, showing economic sentiment improved more than expected across all sectors in January, helping to brighten the outlook for oil demand.

Europe's economy holds the key to determining world oil demand in 2013, the chief economist of the International Energy Agency said on Thursday, cautioning that high oil prices could hurt growth.

"My biggest worry nowadays is the oil price," Fatih Birol, chief economist of the West's energy watchdog said in Tokyo ahead of an industry seminar.

Any shift in oil prices could be capped until Friday's release of U.S. nonfarm payrolls data and official manufacturing data out of China that is expected to show factory activity picking up pace.

"We see persistent macro-driven trading for oil with much attention paid to the U.S. non-farm payrolls report tomorrow," said VTB Capital oil strategist Andrey Kryuchenkov.

"Some pre-weekend profit taking is still very possible, with the market being technically overbought at the moment."

China's promising economic growth forecast for 2013 has raised expectations for robust demand for fuel from the top energy consumer.

SUPPLY

Supply worries stemming from tensions in the Middle East continued to underpin oil prices.

Israeli warplanes bombed a convoy near Syria's border with Lebanon apparently targeting weapons destined for the militant group Hezbollah in what some called a warning to Damascus not to arm Israel's Lebanese enemy.

Hezbollah condemned the attack, saying it was an attempt to thwart Arab military capabilities and pledging to stand by its ally President Bashar al-Assad.

And tension over Iran's uranium enrichment plan continued to bubble after a plan to upgrade its refining equipment was delivered to the U.N. nuclear agency.

Such a step could enable Iran to refine uranium faster than it can at the moment and increase concerns in Western states and Israel about the goals of Tehran's nuclear programme, which they fear has military aims. Iran says its work is peaceful.

"This is a reminder that the supply risk relating to the Iran conflict is far from over despite being put to the background in recent months," said Fritsch of Commerzbank