Oil benchmarks declined more than 3% on Friday after rallying in the previous session while traders assessed geopolitical supply disruptions and renewed demand signals from top buyer China.
Front-month West Texas Intermediate futures fell 3.5% to $98.96 per barrel, while Brent futures dipped 3.3% to $104.03/bbl.
"A rise in attacks between the US and Iran has seen the market become increasingly concerned that the conflict could keep oil flows through the Strait of Hormuz constrained for the foreseeable future," ANZ analysts said.
Analysts noted that the prior session's spike was driven by escalating Red Sea tensions, fierce fighting between Yemen-based Houthi militants and Saudi-backed forces, and unconfirmed reports of damage to the vital East-West pipeline to Yanbu.
Satellite images on Thursday showed the presence of smoke at or near a stretch of the Saudi Arabia's East-West pipeline, media outlets reported Friday.
On the supply side, the Energy Information Administration reported a modest 400,000-barrel drop in US commercial crude inventories to 424.1 million barrels for the week ending September 4, falling short of market expectations.
Meanwhile, Asian demand pressures are building as independent Chinese refiners ramp up run rates to nearly 63% from a July low of 45%, analysts said.
ING analysts warned that this renewed buying appetite from the world's largest crude importer could further amplify global market sensitivities if ongoing Middle East supply disruptions persist.
China will raise retail gasoline and diesel prices following a recent strengthening in global energy markets, although hikes will remain below the official ceilings to limit the impact on consumers, media outlets reported Friday, citing the National Development and Reform Commission.