Oil rose on Friday as investors kept watch on a gathering storm in the Atlantic Ocean that renewed concern of possible damage to offshore oil rigs this hurricane season.

U.S. crude settled 68 cents higher at $74.04 a barrel ahead of the long U.S. Labor Day holiday weekend. London Brent climbed 79 cents at $72.69 a barrel.

The U.S. National Hurricane Center said Friday that a well-organized tropical wave in the Atlantic Ocean about 200 miles east of the Windward Islands could form into a tropical depression later on Friday.

Given some lingering weather concerns and the fact that we are heading into a long weekend, we could end up on a slightly firmer note, a report from MF Global said.

Analysts said short-covering ahead of the three day U.S. holiday weekend added support to prices.

Surging equities also gave a boost to energy futures amid optimism a U.S. government proposed mortgage assistance package could ease liquidity conditions.

U.S. oil has fallen from an all-time high of $78.77 struck on August 1 but has held up well compared to other commodities dragged down by the global credit crunch.

A steep drop in U.S. crude and gasoline stocks in the week to August 24 reported by the government on Wednesday also propped up oil. Prices may further strengthen as refineries in the U.S. Midwest enter heavy maintenance that could tighten products such as transport fuels.

We expect heating oil and gasoline prices to remain well supported, as overall market conditions in products have tightened considerably, a Barclays Capital report said.

Demand remains solid, refinery production limited, and inventory levels low, all of which should bode well for prices.

Officials from the Organization of the Petroleum Exporting Countries say shortfalls of refined products are not their problem and the world is amply supplied with crude.

The 12 exporters, which agreed last year to cut 1.7 million barrels per day from supplies, meet in Vienna on September 11 where they are expected to hold output steady.