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 Light, sweet crude for April delivery fell 32 cents to $105.15 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe.
The contract rose 95 cents Thursday to settle at a record $105.47 a barrel after earlier spiking to a trading record of $105.97.
In London, Brent crude futures lost 64 cents to $101.64 a barrel on the ICE Futures exchange.
Analysts believe the steadily weakening dollar is the reason oil prices have repeatedly broken inflation-adjusted records this week. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is falling.
On Friday, the dollar hit another record low against the euro, with the European currency rising above $1.54 for the first time since its 2002 launch.
"There are expectations that the dollar will go lower, and that's driving money into commodities," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "Traders now have this mantra: sell the dollar and buy oil, or buy commodities."
Analyst estimates for where oil goes from here vary widely. Some predict an eventual decline to the $65 or $70 range as supplies continue to grow and demand falls. Others see prices rising as high as $120 as investment capital continues to flow into oil.
"We have the speculative funds and investors betting that oil pricing will strengthen. On the other hand, we have the commercial players, who actually ship and use the oil, betting that prices will decline," Shum said.
Shum said market fundamentals, which have shown increases in crude inventories amid softening demand, do not justify the current price surge, and warned of a sharp correction.
"The strength in oil pricing smells of a bubble ... the oil market might be primed for a pullback," he said. "At some point, some event will trigger financial players to exit oil as fast as they've got into oil."
Still, the lagging dollar may trump all other factors.
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 The Schork Report, edited by analyst Stephen Schork, says while U.S. crude oil stocks had risen 4.3 percent since January, during the same period the dollar had fallen by 5.1 percent against a basket of world currencies.
"Thus, as long as the weakness of the greenback continues to grab the headlines, speculators will continue to shrug off the supply situation," the report said.
"If the U.S. Administration was really concerned about the rise in oil, then its efforts would be better spent publicly defending the dollar rather than chastising OPEC," Schork said.
President Bush lashed out at the organization this week for failing to open the spigots.
The Organization of Petroleum Exporting Countries shrugged off Bush's comments Wednesday, refusing to boost output. OPEC says crude supplies were plentiful and demand will weaken in the second quarter.
Also supporting prices was a rebel attack on a Colombian oil pipeline that transports 60,000 barrels of oil a day for export markets.
The attack came Thursday as traders worried about escalating border tensions after Colombia killed a rebel leader in Ecuador. Venezuela threatened to slash trade and nationalize Colombian-owned businesses. Venezuela and Ecuador have sent troops to their borders with Colombia.
All three countries are oil producers, with Venezuela ranking as one of the world's top oil producers and a major supplier to the United States.
Heating oil futures slipped 2.78 cents to $2.9455 a gallon (3.8 liters) while gasoline prices lost 0.32 cent to $2.6500 a gallon.
Natural gas futures rose 2.3 cents to $9.765 per 1,000 cubic feet.
[Associated Press; By PABLO GORONDI]
Associated Press writer Gillian Wong in Singapore contributed to this report.
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