Shafaq News/ Oil slipped on Friday following an earlier price spike of more than $3 after Iran played down reported Israeli attacks on its soil, in a sign that an escalation of hostilities in the Middle East might be avoided.
Brent futures were down 72 cents, or 0.83%, at $86.39 a barrel by 1314 GMT.
The front month U.S. West Texas Intermediate (WTI) crude contract for for May fell 66 cents, or 0.8%, at $82.07 at 1314 GMT. The more active June contract was down 68 cents, or 0.83%, to $81.42.
Explosions were heard in the Iranian city of Isfahan on Friday in what sources described as an Israeli attack, but Tehran played down the incident and said it did not plan to retaliate.
"Whilst the initial spike in oil may have highlighted the initial fear of further escalation, we have seen both equities and crude reverse some of those preliminary moves," said Joshua Mahony, chief market analyst at Scope Markets.
Investors had been closely monitoring Israel's reaction to Iranian drone attacks on April 13 that were in turn a response to a presumed Israeli air strike on April 1 that destroyed a building in Iran's embassy compound in Damascus.
Meanwhile, U.S. lawmakers have added sanctions on Iran's oil exports to a pending Ukraine aid package that targets ships, ports or refineries that process Iranian crude and transactions from Chinese financial institutions involving purchases of petroleum from Iran.
Iran is the third largest oil producer in the Organization of the Petroleum Exporting Countries (OPEC), according to Reuters data.
As oil's risk premium has gradually unwound, prices have fallen around 4% since Monday and are set for their biggest weekly loss since early February.
Investors, however, are not ruling out Middle Eastern tensions will disrupt supply.
"The oil market is nonetheless concerned as there is too much oil supply at stake," said Bjarne Schieldrop, commodities analyst at SEB Research.
Analysts from Goldman Sachs and Commerzbank raised their Brent crude forecasts on Friday, taking into account geopolitical tensions as well as the prospect of rising demand and restrained supply by the Organization of the Petroleum Exporting Countries and allies (OPEC+).
"Oil demand is growing at a healthy pace, and supply should be constrained due to the extensions of the voluntary production cuts of OPEC+," UBS analyst Giovanni Staunovo said.