Crude oil fell on Friday in choppy trading as Europe's debt problems helped the dollar index rebound, extending losses into a second day after consuming nations announced they were tapping strategic reserves.

Brent's premium to U.S. crude fell below $14 a barrel from above $19 on Wednesday, the day before the International Energy Agency made a surprise announcement to release oil from strategic reserves. The premium has contracted from its record $23.34 reached on June 15.

The euro fell versus the dollar as investors worried that Greece's parliament may not pass austerity measures needed for the country to secure more bailout funds.

The strengthening of the dollar index is helping pressure oil and we're seeing an unwinding of the Brent-WTI spread because of the release of the strategic reserves, said Phil Flynn, analyst at PFGBest Research in Chicago.

The Brent-WTI spread coming in indicates that the release was justified, he added.

ICE Brent crude for August fell $1.90 to $105.36 a barrel by 1:50 p.m. EDT, swinging between $103.62 and $108.70 after the previous session's nearly 6 percent slide.

Brent trading volumes were heavy, eclipsing U.S. crude for a second straight day after hitting a record over 1.2 million lots on Thursday.

The consuming nations' release of reserves has sent Brent into contango, with front-month Brent trading at a 17-cent discount to the September contract on Friday, after closing Thursday at a 21-cent premium to the second month.

U.S. August crude was near flat, wavering between positive and negative territory, and only briefly dipping under the $90 level.

U.S. gasoline futures suffered a bigger percentage loss than crude on Friday, as did heating oil, the distillate benchmark.

U.S. refined products prices had been reacting to pricier Brent crude futures in recent months.

IEA RESERVE RELEASE IMPACT

The International Energy Agency (IEA) announced on Thursday a release of 60 million barrels of government-held stocks over the next 30 days.

Leading commodities banks JP Morgan and Goldman Sachs cut their oil price forecasts following the IEA announcement, but Bank of America Merrill Lynch kept its forecast for the second half unchanged at $102 a barrel.

Saudi Arabia, the world's leading crude oil exporter, has yet to make any comment on the release.

The IEA move came after the Organization of the Petroleum Exporting Countries last month could not reach agreement on a boost to production targets. But Saudi Arabia had pledged to increase output to meet demand.

Saudi Arabia will be crucial -- will it stick to its promise to increase its output to 10 million barrels a day or not? said Carsten Fritsch, an analyst at Commerzbank in Frankfurt.

If they don't, then the IEA decision will have backfired. Maybe they will scale back production in July after this stock release.

U.S. Treasury Secretary Timothy Geithner said on Friday that the IEA's decision was sensible policy.

It will provide some modest help and relief to the U.S. economy, Geithner told reporters after meeting local business leaders in Manchester, New Hampshire. It was a prudent use of existing reserves.

Better-than-expected U.S. durable goods data provided a brief lift to U.S. crude futures earlier on Friday.

New orders for U.S. manufactured goods in May increased 1.9 percent after dropping 2.7 percent in April, the Commerce Department said.

But concerns about euro zone debt problems continued to weigh on markets. The S&P <.SPX> fell about 1 percent as worries about the Italian banking sector added to the uncertainty over the passage of a Greek austerity plan.

(Additional reporting by Gene Ramos in New York, Claire Milhench and Ikuko Kurahone in London and Alejandro Barbajosa in Singapore; Editing by Lisa Shumaker)