U.S. West Texas Intermediate (WTI) crude futures fell 58 cents, or 0.7%, to $81.01 a barrel at 0509 GMT, reversing Thursday's 25 cent gain.
Brent crude futures dropped 65 cents, or 0.8%, to $82.22 a barrel.
"The greenback may hold its strength until the expectation of a more hawkish Fed is fully digested by the market, which may not be sooner than mid-2022. Before that happens, a strong dollar can be a possible headwind for higher oil prices," said Leona Liu, analyst at Singapore-based DailyFX.
Both benchmark crude contracts were poised to end the week lower by around 0.7% after sharp moves up and down, driven by a soaring dollar and speculation on whether the Biden administration might release oil from the U.S. Strategic Petroleum Reserve to cool prices.
"The market is in a finely balanced situation," said Westpac senior economist Justin Smirk.
While the market is tightly supplied, he said the bigger issue is the change in the demand dynamic, as the market moves away from a strong recovery driven by a revival in demand for goods - which has stoked energy demand - toward a recovery in demand for services.
There are positive signs on the demand side, with air travel rapidly picking up, but tighter monetary and fiscal policy and the oncoming northern hemisphere winter will act as a dampener.
The Organization of the Petroleum Exporting Countries (OPEC) on Thursday cut its world oil demand forecast for the fourth quarter by 330,000 barrels per day from last month's forecast, as high energy prices curb the recovery from COVID-19.
"Although oil price may benefit from the recovering demands, soaring energy prices and a more sticky inflation may damp the growth prospects, thus to curb oil's topside potential," analyst Liu said.
OPEC, Russia and allies, together called OPEC+, agreed last week to stick to plans to add 400,000 barrels per day to the market each month.
