Oil down to near $98 on Greek bailout uncertainty

By early afternoon in Europe, benchmark crude for March delivery was down $1.67 to $98.17 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.13 to settle at $99.84 on Thursday.

In London, Brent crude was down $1.90 to $116.69 a barrel on the ICE Futures exchange.

Crude has bobbed around $100 for the last few months, buoyed by signs the U.S. economy is improving. On Thursday, the U.S. reported that the number of Americans seeking unemployment benefits fell to near a four-year low last week, suggesting the job market is gaining strength.

"The energy market appears positioned for additional price gains as we still look for crude to work its way up to the $101 area," energy consultant Ritterbusch and Associates said in a report.

Oil has risen from $96 earlier this month on growing investor optimism Greece may avoid a chaotic debt default. Greece agreed Thursday to new spending cuts and other austerity measures necessary to receive an international bailout.

Hours later, however, European ministers said Greece didn't go far enough and demanded additional cuts of €325 million ($430 million) within a week in exchange for a €130 billion ($170 billion) bailout to stave off bankruptcy.

Analysts at Sucden Financial in London said the "volatile nature" of the negotiations concerning the Greek bailout were a source of uncertainty for investors.

"(Thursday's) Greek deal optimism seems premature," Sucden Financial said in a research note. "Further, a weaker euro is helping to soften risk appetite and pressure crude prices as European equities are also tracking lower."

Gains by the dollar make crude priced in dollars more expensive for investors trading in other currencies and usually pulls oil prices lower. On Friday, the euro was down to $1.3193 from $1.3290 late Thursday in New York.

Also weighing on prices were the latest forecasts by the International Energy Agency, which lowered its projection for world demand for crude as global economic slows.

The Paris-based IEA cut its expectations of crude demand growth in 2012 by 300,000 barrels a day, to 89.9 million barrels a day, which is still 800,000 barrels a day more than in 2011.

The IEA cited the International Monetary Fund's global GDP growth estimate, which was cut to 3.3 percent for 2012 from a previous estimate of 4 percent.

The IEA said there was "sufficient supply-side flexibility" to cover any losses of crude exports from Iran - which is facing international sanctions because of its disputed nuclear program.

Nonetheless, "perceptions of impending supply issues are clearly placing a floor under oil prices for now," the IEA said in its monthly oil market report.

In other energy trading, heating oil was down 2.38 cents at $3.1847 per gallon and gasoline futures fell 4.29 cents to $2.9699 per gallon. Natural gas added 0.8 cent to $2.485 per 1,000 cubic feet.

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Alex Kennedy in Singapore contributed to this report.