Dollar strength can hurt oil by making it less affordable for consumers using other currencies
Oil prices fell on Friday as the euro and equities tumbled on increasing gloom over economic growth and reinforced worries about Europe's debt problems.
Despite the day's losses, Brent and US crude futures posted small gains for the week. Prices rose earlier in the week on tropical weather threats to US output and a ruling by Germany's top court briefly soothed euro zone debt fears.
The euro fell to a 6.5-month low against the dollar as risk aversion increased on news that a member of the European Central Bank's Executive Board will step down due to a conflict over controversial ECB bond-buying.
The dollar index, measuring the greenback against a basket of other currencies, gained more than 1 percent.
Dollar strength can pressure oil by making it less affordable for consumers using other currencies and by attracting investment to markets offering better returns.
US stocks tumbled more than 2 percent as the ECB news reinforced concerns about the region's debt and as investors remained skeptical about how much of US president Barack Obama's $447bn proposal to generate jobs would make it through Congress.
"Worries about the economy are resurfacing. Oil is tracing the plunging equity markets and strong dollar," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.
ICE Brent October crude fell $1.78 to settle at $112.77 a barrel, swinging from $110.93 to $115.17. Front-month Brent managed a fourth straight weekly gain, but rose only 44 cents, or 0.39 percent.
Brent fell under its 100-day moving average at $114.22 and the 60-day MA of $112.69, according to Reuters data, but bounced back ahead of its 30-day MA at $110.68.
US October crude settled down $1.81, 2 percent, at $87.24 a barrel, having dropped as low as $85.64. US front-month crude posted a third consecutive weekly gain, up only 79 cents, just under 1 percent.
The Brent premium to its US counterpart was at $25.53 a barrel based on settlements, after reaching a record $27.23 intraday on Tuesday.
Brent trading volume was 23 percent above the 30-day average and slightly outpaced US crude volume that was 15 percent below its 30-day average.
Speculators cut their net long US crude oil futures and options positions in the week to September 6, the US Commodity Futures Trading Commission said.
US gasoline and heating oil futures also fell. Gasoline ended nearly 4 percent lower after last Monday's Labor Day holiday, the traditional end of the US summer driving season.
Also bearish for oil, especially Brent, was news that about 2 million barrels of Libyan crude have been offered via a tender, the largest volume to come to market since civil war erupted in February.
The increasing recession fears ramp up the pressure on G7 finance chiefs meeting on Friday to take action to revive economic growth.
International Monetary Fund chief Christine Lagarde on Friday urged policymakers to use all available tools to fuel growth.
The G7 meeting and Lagarde's remarks followed the Organisation for Economic Cooperation and Development saying on Thursday that the outlook for growth in developed countries has worsened in the last three months.
Oil investors continued to eye Tropical Storm Nate in the Bay of Campeche and Tropical Storm Maria in the Atlantic. Nate could reach hurricane strength on Saturday.
Oil companies continued to restore Gulf of Mexico production shut because of Tropical Storm Lee. A little more than 6 percent of crude oil output remained shut on Friday, according to a US government report.