Oil prices fell 2 percent on Friday after Saudi Arabia calmed investor concerns about a reported pipeline explosion that had pushed Brent to the highest level since 2008.
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Both Brent and U.S. crude headed for weekly losses after Brent futures jumped above $128 a barrel to levels last seen in July 2008 in post-settlement trade on Thursday, reacting to an Iranian media report of a pipeline fire in Saudi Arabia.
The surge in prices Thursday was short-lived and Saudi Arabia confirmed on Friday that there had been no attack in the kingdom.
"There were no acts of sabotage in the kingdom yesterday," Interior Ministry spokesman Mansour al-Turki told Reuters. He did not elaborate.
Brent April crude fell $2.19 to $124.01 a barrel at 1:37 p.m. EST (1837 GMT), having traded as low as $123.12, testing below its 10-day moving average of $123.22.
U.S. April crude fell $2.50 to $106.34 barrel, having pushed below the 10-day moving average of $107.04 after reaching $110.55 during the previous day's surge.
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Brent's premium to U.S. crude was little changed as the spread hovered above $17 a barrel.
Total crude trading volumes were tepid, with Brent 11 percent under and U.S. crude turnover 35 percent below their 30-day averages.
"Although the oil complex is responding to some softening in the euro and the equities ... the main source of selling has been a disgorgement of risk premium following yesterday's frenzied price advance (on) reports of Saudi pipeline explosions," Jim Ritterbusch, president at Ritterbusch & Associates, said in a research note.
The dollar index strengthened, the euro slipped against the U.S. currency, putting pressure on oil and dollar-denominated copper.
The fear premium associated with tensions over Iran's nuclear program and a possible military response by Israel has kept oil prices elevated, along with production losses from South Sudan, Yemen, Syria and the North Sea.
Positive manufacturing data out of China, signs of improved economic growth in the United States and a liquidity infusion by the European Central Bank lent support to oil this week.
IRAN STRUGGLING TO SELL CRUDE
Iran, OPEC's second biggest producer, has struggled to sell its crude in the face of tightening U.S. President Barack Obama and Israeli Prime Minister Benjamin Netanyahu are set to meet Monday in Washington as U.S.-led international sanctions begin to take a toll on Iran. Netanyahu dismissed on Friday the idea of renewed international negotiations with Iran.
Some Japanese refiners are set to demand a force majeure clause when they start negotiations for term contracts to avoid difficulties if they are unable to pay Iran or lift Iranian oil due to lack of insurance cover for tankers under European Union sanctions, industry sources said.
India's largest shipping company was forced to cancel an Iranian crude oil shipment last month because its European insurers refused to provide coverage for the vessel, industry sources said.
(Additional reporting by Gene Ramos in New York, Zaida Espana in London and Francis Kan in Singapore; Editing by David Gregorio and Lisa Shumaker)