Brent North Sea crude for delivery in June tumbled to a three-month low at $114.63 a barrel. It later pulled back to stand at $114.94 in London midday deals, down $1.14 from Thursday's closing level.
New York's main contract, light sweet crude or West Texas Intermediate (WTI) for June, sank $1.27 to $101.27 a barrel.
Traders were eagerly awaiting Friday's publication of the US non-farm payroll figures. Economists expect the report -- which includes data on both the private and public sectors -- to show the economy created a meagre 162,000 jobs last month and that unemployment remained at 8.2 percent.
"Today, US labour market data are likely to be the focus of attention," said Commerzbank analyst Carsten Fritsch.
"If they turn out to be disappointing, the (oil) price corrections (downward) we have seen over the past two days can be expected to continue."
He added: "The poorer US economic data from the past two days have sparked doubts that oil demand will recover in the US, the world's largest consumer of oil. Furthermore, the current supply surplus is weighing on prices."
World oil markets witnessed rollercoaster trade this week as investors tracked the global economic outlook.
Crude futures had ticked lower Monday as investors fretted over Spain's double-dip recession and deepening fears that the eurozone's fourth-largest economy might be the next to need a massive bailout.
The market then surged in New York on Tuesday after stronger-than-expected industrial data in the US and China, which are the world's top energy consumers.
However, prices pulled back by the middle of the week after official data showed a bigger-than-expected rise in US crude oil stockpiles and a slowdown in American hiring, sparking concerns about the economy.
Oil prices slumped further on Thursday after fresh data showed a slowdown in the all important services sector of the US economy during April.
Next week, “the headlines will focus on speeches from the Federal Reserve to determine what action will now be taking given the soft employment numbers,” said Michael Yoshikami, chief executive officer of Destination Wealth Management in Walnut Creek, Calif. “It is our view that in all likelihood the Federal Reserve will embark on a new quantitative easing policy sometime in the next 60 days.” read stock market forecast next week may 7-11 2012
An indication by the Organization of the Petroleum Exporting Countries (OPEC) that it wanted to scale prices down to sustainable levels was also bearing down on the market.
"We are not happy with prices at this time," said Abdullah El-Badri, OPEC's secretary general, at an energy conference in Paris on Thursday.
"There is speculation on the market. We have plenty of oil on the market and we are working to bring the prices down," he added ahead of the cartel's next scheduled production meeting in Vienna next month.
OPEC's largest producer Saudi Arabia has previously pledged to ensure sufficient supplies to cover the shortfall caused by Western sanctions on Iranian crude, as well as disruptions caused by Libya's civil war in 2011.
Anxiety over Iran and its nuclear program have pushed up prices for much of this year. Traders have been unwilling to let prices fall too low and get caught by price spike caused by military conflict or the sudden closure of the Strait of Hormuz, a major channel for the world's seaborne oil.
Meanwhile, the European Union is set to ban Iranian oil imports starting July 1, raising demand for oil from other sources and lifting prices.
Analysts have said prices carried a $10-to-$15 fear premium due to Iran.
But the anxieties have cooled a bit recently after Iran agreed to multilateral talks aimed at resolving the nuclear standoff.
At the same time, worries of a supply squeeze are easing as major oil producers boost oil production to ensure supply ahead of the embargo. Saudi Arabia, the world's largest oil exporter, has raised output to 10 million barrels a day in recent months. Also, the United Arab Emirates is about to put in operation a pipeline that will allow about 1.4 million barrels a day of its crude to bypass the Persian Gulf and the Strait of Hormuz.
Also, U.S. inventories of crude oil are at 375.9 million barrels, their highest level since 1990. The stockpiles have ballooned by 11% in the past 12 weeks since benchmark U.S. crude prices last traded below $100.
Meanwhile, the outlook for U.S. and global demand continues to be hampered by a spate of uninspiring economic news.
On Friday, the Labor Department said U.S. nonfarm payrolls rose just 115,000, less than the 168,000 rise seen by economists. Unemployment crept lower to 8.1%, but vastly more people exited the workforce than entered. Weak employment data typically correlates with weaker oil demand because it means fewer motorists traveling to work or taking vacations.
That is exactly what appears to be happening. The U.S. Energy Information Administration, which in February projected a slim rise in 2012 demand in the world's largest oil consumer, had scaled back its view by April and now sees U.S. oil use dropping slightly to a 15-year low.
In Europe, the news is even worse. Spain disclosed this week that it is officially in a recession. And a survey of economic activity in the euro-zone found a faster contraction than previously thought during April. The outlook for China, the world's No. 2 oil consumer, is mixed at best.
The widely watch HSBC China Manufacturing Purchasing Managers Index, a gauge of nationwide manufacturing activity, rose for April, but still indicates the sector is contracting.
Based on the evolving supply-demand picture, traders may now be willing to let prices test lower to levels, where some analysts say the U.S. benchmark crude is fairly valued.
"I thought for sure we'd end up in the low $90s with the flotilla of crude coming from Saudi Arabia,
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