By early afternoon in Europe, benchmark crude was down $1.14 at $91.83 a barrel in electronic trading on the New York Mercantile Exchange. The contract surged $2.79, about 3 percent, to settle at $92.66 in New York on Thursday, its highest level since mid-May.
In London, Brent crude was down $1.02 at $106.78 on the ICE Futures exchange.
The oil market is responding to a series of events that have raised concerns that Iran will try to block oil shipments through the Strait of Hormuz, a narrow waterway in the Persian Gulf through which one-fifth of the world's oil travels every day. The U.S. and Europe have applied sanctions against Iranian oil exports as they try to wring concessions from Tehran over a nuclear energy program they believe is a cover for eventually producing nuclear weapons.
In the past few weeks negotiations with Iran over its nuclear program appeared to have failed, a U.S. Navy ship fired on a boat in the Persian Gulf and Iran said it has devised a specific plan to block oil shipments. Then, on Wednesday, seven Israelis were killed in a suicide attack in Bulgaria. Israel blamed Iran for the attack, and vowed to strike back. Iran has denied involvement.
Analysts say Middle East tensions could cause further spikes for oil but they might not be long-lasting. The world's two biggest crude consumers — the U.S. and China — are both grappling with economic slowdowns that are crimping demand for oil. Supplies, meanwhile, are plentiful.
The recent rise in oil prices — the Nymex contract closed two weeks ago at $84.45 — was motivated not only by the higher geopolitical risks, but were also "a correction to the excessive slump" experienced in past weeks, said analysts at JBC Energy in Vienna.
"Very limited global spare capacity on the supply side combined with seasonal upticks in oil consumption ... could support further price increases," JBC said. "On the other hand, lackluster economic news appears likely to put a stop to the recent rally rather sooner than later. Overall, the current price level would fit quite well with our perception of oil market fundamentals."
In other Nymex energy trading, natural gas was up 0.2 cent at $3.001 per thousand cubic feet. Heating oil was off 2.57 cents at $2.9213 a gallon and gasoline fell 3.63 cents to $2.9026 a gallon.