Oil slips on strong dollar, but still up on week

EDITORS' NOTE: Reuters and other foreign media are subject to Iranian restrictions on their ability to film or take pictures in Tehran.

NEW YORK (Reuters) - Oil prices fell on Friday in choppy trading pressured by the dollar's strength on better-than-expected U.S. jobs growth and by concerns about Europe's economy even as anxiety over Iran and potential supply disruptions supported crude futures.

Brent prices stayed on pace to post a more than 4 percent rise this week and U.S. crude on a more than 2 percent rise in the wake of Iran's threats to shut the key oil-shipping route through the Strait of Hormuz. Iran's threat was in retaliation for tighter sanctions from the United States and a possible ban on its crude exports to Europe.

"The euro is a main driver and at this point is very bearish, especially when looking at Brent in euro terms and just how expensive it has become," said Michael Korn, president of Skokie Energy in Princeton, New Jersey.

The euro fell to a 16-month low against a robust dollar as investors compared sovereign funding problems and the euro zone's economic outlook to an improving U.S. economic recovery. <USD/>

Brent February crude fell 23 cents to $112.51 a barrel by 12:46 p.m. EST (1746 GMT), testing support below Brent's 200-day moving average of $112.73 after retreating from a $113.68 intraday peak.

U.S. February crude fell 66 cents to $101.15 a barrel, having traded from $100.88 to $102.80.

Brent's premium to U.S. crude was above $11 a barrel, having seesawed either side of $11.

Total crude oil trading volumes continued their post-holiday rebound, with Brent only about 8 percent under its 30-day average and outpacing U.S. turnover at midday in New York.

U.S. heating oil futures managed to cling to a slight gain and gasoline showed more resilience than crude, with the credit freeze problems of Europe's independent refiner Petroplus PPHN.S remaining a focus for investors.

France's leading CGT union is discussing possible action because of the impact the credit problems will have on Petroplus refineries, a senior CGT official said, but the official downplayed the prospect of a new nationwide strike.

The U.S. government reported employment growth accelerated in December, with nonfarm payrolls up more than expected and the jobless rate dropping to a near three-year low of 8.5 percent, more evidence of an acceleration in economic activity in the world's top oil consumer.

U.S. stocks edged lower as equities investors experienced the tug-of-war between the supportive stronger U.S. data and fears about Europe's debt crisis. .N

Oil initially rose on the jobs report headlines after also being supported by geopolitical risks to supply.

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Iranian crude exports: link.reuters.com/pyw35s

Graphic on jobless rate: link.reuters.com/vyn85s

Graphic on payroll jobs: link.reuters.com/qyn85s

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DIRE STRAIT

Iran announced plans for new military exercises in the Strait of Hormuz, the latest in weeks of bellicose gestures towards the West as new sanctions threaten Tehran's oil exports.

Western powers have readied a contingency plan to tap a record volume from emergency reserves to replace nearly all the Gulf oil that would be lost if Iran blocks the Strait of Hormuz, according to industry sources and diplomats.

A force majeure on Bonny Light crude exports on Thursday underscored the fragility of supplies from Africa's top exporter, where trade unions are threatening to call a national strike starting on Monday.

"The supply risk regarding Iran is still boiling. On top of this, there is also supply risk from Nigeria," said Carsten Fritsch, analyst at Commerzbank.

Conflict in fellow OPEC-member Iraq added to geopolitical uncertainty. Roadside bombs in Baghdad killed two pilgrims and wounded 17 others headed for a Shi'ite religious rite on Friday, security sources said, as fears of sectarian violence continue to be stoked.

(Additional reporting by Gene Ramos and Jeffrey Kerr in New York, Alex Lawler in London and Florence Tan in Singapore; Editing by Marguerita Choy and Bob Burgdorfer)