) -- Oil prices settled lower on Friday afternoon, after see-saw action for the second straight day. Crude oil opened lower, trended higher toward mid-day, fell by as much as 0.5% in the early afternoon trading action, before seeing its losses narrowed with a decline of 0.2% below Thursday's settle price.

The markets continued to digest the glut of contradictory headlines: Middle East unrest and Libyan conflict, bullish U.S. macroeconomic indicators, European Union bailout package debate, and the tension between Japan's nuclear crisis and longer-term rebuilding effort.

Light sweet crude oil settled at $105.40, down 0.2%. The Friday loss didn't dent the gains for light sweet crude over the past week, with the 4.3% gain in the price of crude notching the biggest weekly gain since March 4.

Brent crude was also in the red on Friday afternoon, recently trading at $115.52, and down 0.2% also.

The Middle East situation remained volatile, with reports of Syrian government forces killing protesters, and NATO indicating that its campaign in Libya could last three months.

The macroeconomic data from the U.S. took a turn to the positive on Friday, with fourth quarter GDP growth revised upwards by the government to 3.1%, and adding to the counter-argument against high oil prices causing demand destruction and slowing economic recovery. Earlier in the week, the crude oil inventory data showed a big drawdown in crude stockpiles, supporting the view that demand destruction was not an issue.

PFG Best market strategist Phil Flynn wrote on Friday morning that the Japanese rebuilding story and the Middle East will continue to lead to a run on commodities including oil. "The world is starting to bet that Japan will be back perhaps stronger and better than ever. Of course the rebuilding of Japan means a run on many commodity products. We will see increase demand for all energy products as well as many other precious commodities. Oil itself will see more demand for many reasons including, but not limited, to its use in construction products. Oil obviously is also focused on events in the Middle East," the market strategist predicted.

The Japanese nuclear crisis presented another element of uncertainty, with reports that one of the reactors at the compromised nuclear plant may have cracked and begun releasing radiation just as Japanese authorities were able to bring power back on line at the plant and hoped to take greater control of the crisis.

Buoyed by the macroeconomic data from the U.S., not just the GDP data but the recent job market improvement, stocks shrugged off the continuing debt problems in Portugal, the downgrades of the country's bonds and the uncertainty over an EU bailout package.

In the energy market, it was energy stocks, and not oil prices, that were rising on Friday, led by the U.S. refiners and predicated on the belief that higher oil prices aren't going to crimp demand.

Holly Corp.



Frontier Oil


were up by more than 6% on Friday, and most of the U.S. refiners were up to a much greater extent than the broad markets and the energy sector.

Western Refining



CVR Energy

(CVI) - Get Report

were up 4% and 5% respectively.

Energy stocks got off to a sluggish start on Friday morning, but by the afternoon were again outpacing the broad market gains, up by 0.6% on Friday, a little ahead of the 0.5% gains in the Dow Jones Industrial Average and S&P 500.

Sam Margolin, energy stock analyst at Dahlman Rose, said that the refiners would have consistently been hitting new highs throughout the past four weeks if the Middle East unrest hadn't raised concerns about price driven demand destruction. "The market may be getting more comfortable with the idea of a consumer that can pay $4/gallon for gasoline. Very little has changed from an earnings perspective over the past several weeks -- the group has just been fighting sentiment, which could be growing more positive," the Dahlman Rose analyst said.

Even as oil prices slipped on Friday, Barclays upped its forecast for oil prices, writing in its Oil Market Update that WTI crude oil will reach an average price of $106 a barrel this year. Barclays predicts that Brent crude will average $112 per barrel in 2011. Barclays also took a stab at the long-term oil view on Friday, predicting that oil prices will average $185 in 2020.

Trading in the super major oil companies and U.S. independent exploration and production companies also gained momentum on Friday afternoon.


(HES) - Get Report



(CVX) - Get Report


Exxon Mobil

(XOM) - Get Report



(COP) - Get Report

were all outpacing market gains, with Hess' 2.7% gain leading all oil majors, and the rest of the oil majors up between 1% and 1.5%.

Trading in the U.S.-based independents was led by

Newfield Exploration


, up by more than 4%, and followed by

EOG Resources

(EOG) - Get Report


Noble Energy

(NBL) - Get Report

, with 2% gains on Friday afternoon.

Chesapeake Energy

(CHK) - Get Report



(APA) - Get Report


Anadarko Petroleum

(APC) - Get Report

were all gaining more than 1% on Friday afternoon and mirroring the upward trend in the energy sector through Friday's action, even as oil prices see-sawed and settled lower.

Among super majors,


(BP) - Get Report

highlighted the news on Friday, with a court extending an injunction holding up BP's deal with Russia's Rosneft to explore in the Arctic. The joint venture includes a $16 billion share swap. BP's partners in its existing Russian TNK-BP venture had gone to court to block the deal between Rosneft and BP arguing that their existing deal with BP included the right of first refusal on any Russian operations.

Rosneft vowed to press ahead with the BP deal, though there was speculation in the market that the court injunction, coupled with BP CEO Bob Dudley's past history of problems in Russia, could lead Rosneft to seek other partners.

While the headline was a negative for BP, its shares rebounded from a morning decline on Friday and were up 0.6% in afternoon trading.

PFG Best's Flynn described the BP-Russia deal problems as a blow to BP and the energy markets in terms of the difficulties of operating in Russia, but said that headed into the weekend, the oil trade still had upside.

"Oil traders have a lot to ponder as we head into the weekend and we are not just talking about Libya. Jordan, one of the U.S. strong allies in the Middle East, has seen violence occur overnight as protesters are calling for the ouster of King Abdullah.... Friday's planned protests

in Syria were to take place after al-Assad promised to 'study' ending the country's emergency rule, which has been enforced since 1963.... The concessions come after a week of violent crackdowns on anti-government protesters that have left dozens killed. Security forces have reportedly opened fire on protesters in the city of Daraa, the focal point of this week's protests. Going into the weekend there are still risks to the upside!" the market strategist wrote on Friday.

-- Written by Eric Rosenbaum from New York.

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