Oil up near $104, Iran sanctions support

(Reuters) - Oil fell on Friday and headed for a weekly loss as Europe's debt crisis continued to weigh on prices, while a drop below a key technical level by U.S. crude added to the bearish sentiment.

U.S. crude fell below its 300-day moving average of $93.20 after testing support in the area the previous session and earlier on Friday.

Both Brent and U.S. crude futures received a boost early from a weaker dollar and a higher open by U.S. equities, which were lifted by a brighter U.S. economic outlook. But the euro turned negative versus the dollar and stocks on Wall Street also -wobbled.

Oil prices have gyrated this week. Brent shot up to $111.10 on Tuesday on fears about restrictions or disruptions to the key Strait of Hormuz shipping lane and then plunged more than 4 percent on Wednesday in a broad commodities sell-off triggered by concerns over Europe and OPEC's decision to target production of 30 million barrels of oil per day.

Brent February crude fell 68 cents to $102.92 a barrel by 1:05 p.m. EST, retreating from $104.56.

U.S. front-month January crude fell 92 cents to $92.95 a barrel, down a third straight day and pushing below the 300-day moving average of $93.20 to an intraday low of $92.52.

Brent's premium against U.S. crude narrowed to under $10 a barrel on Friday, after widening to near $12 a barrel intraday on Thursday.

Crude trading volumes remained anemic, with both Brent and U.S. volumes 53 percent under 30-day averages in afternoon trading in New York.

"Volumes are likely to be decreasing slowly as we get nearer to Christmas," said Commerzbank's Weinberg. "During this period, because of the lower volumes, the market is more susceptible to moves that aren't fundamentally sound. We may see some further volatility."

Helen Henton, head of commodities research at Standard Chartered, remained bearish on oil going into the first quarter of 2012, citing a slowdown in the global economy.

"Brent has stayed quite surprisingly high over the last month, given that we have had dollar strength," she said. "The downside risks for Europe are quite significant, but it will take some trigger to move lower."

(Additional reporting by Claire Milhench in London and Manash Goswami in Singapore)