Brent oil futures seesawed near unchanged after slipping off a 32-month high Thursday as traders took some money out of recently rising energy markets before a holiday weekend.
U.S. oil futures rose in choppy trading as a weaker U.S. dollar, which fell to its lowest since 2008 against a basket of foreign currencies, stoked risk appetite for the cheaper U.S. benchmark crude.
Separate reports showed the pace of factory activity in the U.S. Mid-Atlantic region fell in April and U.S. initial jobless claims held above 400,000 which cast some doubt on the pace of U.S. economic recovery and how it could affect energy demand.
The dollar tumbled for a third straight day and the dollar index <.DXY> neared an all-time low.
Brent crude for June edged up 10 cents to $123.95 a barrel by 2:15 p.m., having earlier pushed up nearly $1 to $124.81, the highest since April 11.
U.S. crude for June rose 70 cents to $112.15, just off an earlier intraday high of $112.48.
Brent's premium to its U.S. counterpart narrowed by 60 cents to $11.80 a barrel.
Brent has lost a little momentum in its rally, said Gene McGillian of Tradition Energy in Connecticut. But it's still got a big advantage to U.S. crude and that spread is unwinding a bit now.
Oil markets in the United States and Europe will be shut on Friday for a holiday.
Unrest and geopolitical threats to oil supplies in Africa and the Middle East remained supportive for prices, and brokers and analysts said the risks would limit incentive to take profits after oil prices gained this week.
Brent was trading within a few dollars of the 32-month high of $127 a barrel reached earlier this month, a level which forecasters in consumer countries have said is already high enough to hurt world oil demand.
The dollar has weakened this week after Standard & Poor's cut its outlook for U.S. government debt to negative, leading some foreign exchange analysts to tout the euro's potential as an alternative reserve currency.
Both Brent and U.S. prices had jumped on Wednesday after the U.S. government reported crude oil and refined products inventories fell.
JOBLESS CLAIMS, FACTORY DATA DISAPPOINT
A note of caution about oil demand came with a report showing that while U.S. initial jobless benefit claims fell last week, they held above the key 400,000 level, indicating possible loss of momentum in the jobs recovery.
Adding to investor concern, the pace of U.S. Mid-Atlantic region factory activity fell more than expected in April, after expanding at its fastest pace in 27 years in March, the Philadelphia Federal Reserve Bank said.
The International Energy Agency's Chief Economist Fatih Birol said oil producing nations need to reassure the market after unrest in the Middle East and worries about supply disruptions in the region pushed crude prices to near 32-month highs.
With gasoline prices already $4 a gallon in some states, the Obama administration unveiled a working group of federal agencies to probe potential fraud in the energy markets.
AFRICA/MIDDLE EAST TURMOIL
Muammar Gaddafi's forces attacked a rebel-controlled oil pumping station in eastern Libya, an official with an insurgent-run oil company said on Thursday.
The attack could delay efforts to restart production from the rebel-controlled Sarir and Messla oilfields, where output was suspended after an attack two weeks ago.
A new version of a Gulf Arab proposal to end Yemen's political crisis called for a three-month transition plan that would end with a presidential election, a senior Yemeni official told Reuters.
(Additional reporting by Emma Farge in London and Francis Kan in Singapore, and Joshua Schneyer in New York; Editing by John Picinich)