Oil prices dipped towards $107 on Friday, extending a near 8 percent fall this week, as traders shed commodities positions to join a dollar rally and on signs that $100-plus prices were crippling demand.

Concerns about the health of the US economy overshadowed an unexpected drop in weekly US crude oil stocks, with a deeper draw expected this week as the industry registers the effects of Hurricane Gustav, which shut down Gulf refineries and oilfields.

US crude for October delivery dipped 55 cents to $107.34 a barrel by 0636 GMT. The contract fell on Thursday to settle at $107.89 a barrel, its lowest since April 4.

London Brent crude fell 36 cents to $105.94 a barrel, having lost $1.76 a day ago.

"Continuing worries about the international economic outlook, a firmer US dollar, and, possibly, market speculation that Opec may not move production levels following next week's Opec meeting left oil prices softer," David Moore, commodity strategist from Commonwealth Bank of Australia, said in a note.

The US dollar rallied to its highest against the euro in 10 months on Thursday, while the European currency staged its biggest one-day drop against the yen in a decade as investors fled risk, with financial sector concerns the underlying theme.

The dollar fell versus the yen on Friday as investors unwound their risky carry trades, spooked by a 3 percent slump on major US stock indices a day ago and a subsequent fall in Asia.

Traders also awaited fresh US economic indicators, including the unemployment data, expected to show tens of thousands more Americans likely lost their jobs last month.

Opec meets on Sept. 9, with some expectations the cartel may opt to cut oil prices to prevent a build-up of surplus stocks that could deepen the slump slump in prices, which have fallen sharply from a July record high of $147.27 a barrel.

Iran has said the producer group may need to cut oil supplies by as much as 1.5 million barrels per day, or nearly 5 percent, to balance global markets by early next year. -Reuters