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Oil prices rose slightly on Friday and were on track for their second straight weekly gain, as resilient demand resulted in a larger-than-expected fall in U.S. oil stocks, offsetting fears of higher U.S. interest rates.

Brent crude futures were up 20 cents, or 0.3%, at $76.72 a barrel at 0304 GMT, while U.S. West Texas Intermediate crude gained 19 cents, also 0.3%, to $71.99 a barrel.

Both benchmarks were set to gain about 2% for the second straight week.

"The crude demand outlook is starting to look better as we enter peak summer travel in the U.S., and as the Saudis were able to raise prices to Europe and Asia," said Edward Moya, an analyst at OANDA.

U.S. crude stocks fell more than expected on strong refining demand, while gasoline inventories posted a large draw after an increase in driving last week, the Energy Information Administration said on Thursday. [EIA/S]

That comes as top oil exporters Saudi Arabia and Russia announced a fresh round of output cuts for August. The total cuts now stand at more than five million barrels per day (bpd), equating to 5% of global oil output.

However, oil price gains were capped by strengthening expectations that the U.S. central bank is likely to raise interest rates at its July 25-26 meeting after holding rates steady at 5%-5.25% in June.

The number of Americans filing new claims for unemployment benefits increased moderately last week, while private payrolls surged in June, data showed on Thursday, raising the likelihood of a Federal Reserve rate hike this month.

OPEC will likely maintain an upbeat view on oil demand growth for next year when it publishes its first outlook later this month, predicting a slowdown from this year but still an above-average increase, sources close to OPEC said.

Higher interest rates increase borrowing costs for businesses and consumers, which could slow economic growth and reduce oil demand. Investors will look for cues on rate paths from U.S. and China inflation data next week.

"Oil has found a floor this week and it looks like it could head higher as long as global recession fears don’t run wild," Moya said.