Oil slips from three-week high, holds above $74

Oil slipped on Friday from its highest closing price in three weeks as investors remained sceptical that rising U.S. demand and falling stockpiles would prevail over concern Europe's debt crisis may deepen.

US oil demand jumped 8% in the past four weeks from a year ago, government statistics showed on Thursday, led by a 17% surge in distillates as transport and industry lifted diesel use. Crude and gasoline stocks fell last week.

Traders are now looking to Friday's US non-farm payrolls, expected to show a fifth straight month of gains in May, as the next economic indicator to drive oil prices.

U.S. crude for July shed 19 cents to USD 74.42 a barrel at 0641 GMT, after jumping 2.4 percent on Thursday to close at USD 74.61, the highest settlement for a front-month contract since May 12. ICE Brent dipped 15 cents to USD 75.26.

"Prices rebounded well yesterday following another pretty strong set of U.S. demand data and early readings of a potentially active hurricane season," said Yingxi Yu, a Singapore-based commodities analyst with Barclays Capital.

"But people are still generally quite nervous. This tension between very strong fundamental readings and still very cautious sentiment about the future will continue to lead to pretty high volatility. Ultimately strong fundamentals will take hold."

Oil was heading for a second straight week of gains, helped by forecasts for an intense Atlantic hurricane season that may impact operations in the energy-rich Gulf of Mexico this summer.

The US dollar and Asian stocks held on to recent gains on Friday ahead of the US jobs report, supporting a cautious shift back into riskier assets this week.

But fears about tougher funding conditions in Europe and the impact of tighter fiscal policy on growth may keep a heavy lid on the nascent revival in risk taking.