* Brent/U.S. crude price spread narrows
* Dollar index strengthens, helps pressure oil
* Coming up: API oil data at 4:30 p.m. EDT Tuesday (Recasts, updates Brent prices, market activity)
By Robert Gibbons
NEW YORK, June 24 (Reuters) - Brent crude prices fell 2 percent on Friday as Europe's debt problems and a dollar index rebound extended oil's decline a day after consuming nations announced they were tapping strategic reserves.
Dropping 7 percent for the week, Brent's premium to U.S.
crude
U.S. crude ended slightly higher on Friday, after seesawing and briefly dipping below $90 a barrel, finding support above Thursday's low trade.
The euro fell versus the dollar as investors worried that Greece's parliament may not pass austerity measures needed for the country to secure more bailout funds.
"The strengthening of the dollar index is helping pressure oil and we're seeing an unwinding of the Brent-WTI spread because of the release of the strategic reserves," said Phil Flynn, analyst at PFGBest Research in Chicago.
"The Brent-WTI spread coming in indicates that the release was justified," he added.
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Analysis-Self-regulation for oil futures [ID:nL6E7HO1GB]
Column-IEA stock release crushes Brent spreads [KEMP/]
Analysis-OPEC, IEA clash over oil reserves [ID:nLDE75M1DM]
Obama's oil reserves plan took shape in May[ID:nN1E75M214]
Graphic package on reserves: http://r.reuters.com/xew32s
RSI graphic:http://graphics.thomsonreuters.com/gfx/MR_20112406143841.jpg
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ICE Brent crude for August
Brent trading volumes were heavy, eclipsing U.S. crude for a second straight day, after hitting a record over 1.2 million lots on Thursday.
The consuming nations' reserves release sent Brent into contango, with front-month Brent ending at a 19-cent discount to the September contract, after closing Thursday at a 21-cent premium to the second month.
U.S. August crude
Money managers slashed their net-long U.S. crude futures and options positions in both New York and London in the week to June 21, the Commodity Futures Trading Commision said on Friday. [ID:nEMS403FXX]
The relative strength index for both Brent and U.S. crude approached the 30-point mark, a signal that a contract has been oversold, following the sell off IEA announcement, although WTI edged up slightly up after the late day price rally.
U.S. gasoline futures
U.S. refined products prices had been reacting to pricier Brent crude futures in recent months.
IEA RESERVE RELEASE IMPACT
The International Energy Agency (IEA) announced on Thursday a release of 60 million barrels of government-held stocks over the next 30 days.
Leading commodities banks JP Morgan and Goldman Sachs cut their oil price forecasts following the IEA announcement, but Bank of America Merrill Lynch kept its forecast for the second half unchanged at $102 a barrel. [ID:nL3E7HO01S]
Saudi Arabia, the world's leading crude oil exporter, has yet to make any comment on the release.
The IEA move came after the Organization of the Petroleum Exporting Countries last month could not reach agreement on a boost to production targets. But Saudi Arabia had pledged to increase output to meet demand.
"Saudi Arabia will be crucial -- will it stick to its promise to increase its output to 10 million barrels a day or not?" said Carsten Fritsch, an analyst at Commerzbank in Frankfurt.
"If they don't, then the IEA decision will have backfired. Maybe they will scale back production in July after this stock release."
U.S. Treasury Secretary Timothy Geithner said on Friday that the IEA's decision was "sensible policy."
"It will provide some modest help and relief" to the U.S. economy, Geithner told reporters after meeting local business leaders in Manchester, New Hampshire. "It was a prudent use of existing reserves."
Better-than-expected U.S. durable goods data provided support to U.S. crude futures in the early going on Friday.
New orders for U.S. manufactured goods in May increased 1.9 percent after dropping 2.7 percent in April, the Commerce Department said. [ID:nN1E75N087]
But concerns about euro zone debt problems continued to weigh on markets. U.S. stocks headed for three days of losses as worries about the Italian banking sector added to the uncertainty over the passage of a Greek austerity plan. [.N] (Additional reporting by Gene Ramos in New York, Claire Milhench and Ikuko Kurahone in London and Alejandro Barbajosa in Singapore; Editing by Lisa Shumaker and David Gregorio)