Oil prices fell on Friday on worries over a looming Chinese economic slowdown and decades-high oil output in the United States but stayed just above $107 per barrel due to a weak U.S. dollar and several supply disruptions.
Brent crude oil futures for September dropped 50 cents to $107.15 per barrel by 1000 GMT after posting a 46 cent gain on Thursday. U.S. light crude for September was down 75 cents at $104.74 a barrel.
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"We have a shift in sentiment towards demand concerns following Chinese economic data this week," said Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt.
"Oil ought to be benefiting from the weaker dollar and strengthening U.S. economy, but that is not the theme today."
The dollar hovered near a more than one-month low against a basket of major currencies, encouraging investors to buy dollar-denominated commodities such as oil.
China's manufacturing activity hit an 11-month low in July and its job market weakened, according to preliminary data from HSBC, raising concerns of slower demand growth in the world's second-largest oil consumer.
"The market is focused on demand rather than supply," ANZ analyst Natalie Rampono said. "Weaker flash PMI numbers out of China on Wednesday are contributing to that weakness and keeping prices under a little bit of pressure."
Brent headed for a second weekly decline, and U.S. crude looked set for its first weekly fall in five weeks.
U.S. crude output hit its highest since 1990, while crude inventories showed a much smaller fall in the week to July 19 than in previous weeks, data from the U.S. Energy Information Administration showed.
Chatham House fellow Paul Stevens summed up some of the market worries in the Financial Times on Friday, writing that "a significant collapse" in oil prices could be looming as demand destruction and increasing oil output weaken the market.
"Higher supply and lower demand will put the high prices needed by OPEC under pressure," Stevens said.
"The key will be how long Saudi Arabia continues to act as swing producer. If they are no longer willing or able to protect prices then these must fall," he added.
But supply disruptions in the North Sea, Middle East and Africa offer some support to oil prices.
The North Sea's Forties pipeline has cut pumping rates by about 40,000 barrels per day (bpd) because of maintenance work, tightening supply of the crude that underpins the Brent benchmark.
In Iraq, crude exports will be cut by between 400,000 and 500,000 bpd in September due to maintenance at ports, while Yemen's key export pipeline has been blown up by tribesmen.
Protests in Libya have also halted oil exports from a key port, and South Sudan is set to stop crude output by Aug. 7 in a dispute with Sudan.
Traders are eyeing protests in Egypt on Friday for any signs that conflict will spillover into other countries in the Middle East that could threaten oil supply. (Additional reporting by Florence Tan and Manash Goswami in Singapore; Editing by Jeff Coelho)