Oil prices retreated on Friday in choppy trading as uncertainties about Europe's plan to tackle its debt problems prompted some profit taking after the previous session's rally.
Brent and U.S. crude remained on track to post weekly gains, but Brent slipped more, dropping below its 100-day moving average. A rise in consumer sentiment helped limit losses in U.S. crude.
Brent's premium over U.S. crude narrowed to near $17 a barrel, after it topped $19 intraday on Thursday.
After a rally like we saw yesterday it was reasonable to see oil prices fall, Torbjorn Kjus of DnB NOR said.
There was a bit of euphoria yesterday based on the EU meeting and when you look at it (it) wasn't that strong a package. It was a moderate package so it was a little bit surprising to see so much of a rally.
Oil rose on Thursday in a cross-market rally after European governments announced a plan to tackle the region's sovereign debt crisis and after news that the U.S. economy in the third quarter grew at its fastest pace in a year.
ICE Brent December crude fell $2 to $110.08 a barrel by 12:45 p.m. (1645 GMT), having traded from $109.71 to $112.23. Brent fell back below the front-month 100-day moving average of $111.46.
U.S. December crude fell 55 cents to $93.41 a barrel, having slumped as low as $92.01.
Crude trading volumes remained tepid a second straight day. Brent volumes outpaced U.S. transactions but Brent was 36 percent and U.S. 56 percent below their 30-day averages.
U.S. volume was only closing in on 300,000 lots traded during the noon hour in New York, after topping 1 million earlier this week.
News that winter storm watches were issued for parts of the Mid-Atlantic and Northeast failed to keep U.S. heating oil futures from posting bigger percentage losses than U.S. crude.
They more closely tracked Brent's losses as New York Mercantile Exchange November refined products contracts approach their expiration Monday.
Oil prices also received pressure from data showing Japan's factory output fell in September for the first time since the March earthquake. This indicated that recovery after the disaster is tailing off in the face of slowing global growth, the strong yen and Europe's problems.
The markets are now going to react to most all of the macroeconomic data that hits the airwaves much as it did ... when Japanese factory production declined by 4 percent in September, Dominick Chirichella, senior partner at Energy Management Institute in New York, said in a note, emphasizing the global manufacturing sector's importance going forward.
U.S. equities edging lower also added to the downbeat day for oil, as investors paused following a rally that sent the S&P 500 index up almost 20 percent since briefly dipping into bear market territory earlier this month. .N
EUROPE STILL A FOCUS
The dollar index .DXY clung to a small gain, helping pressure dollar-denominated oil, as the euro eased from a seven-week high hit Thursday and an Italian bond auction showed investors are not fully convinced the region's problems are resolved after the debt crisis deal.
A German court on Friday suspended a parliamentary committee's right to approve urgent actions by the euro zone's bailout fund, potentially delaying key moves to tackle the bloc's crisis.
The head of Europe's bailout fund sought financial support from China to help resolve the debt crisis, saying no quick deal was in sight but he was still confident Beijing would keep buying bonds issued by his fund.