Separate reports showed the pace of factory activity in the Mid-Atlantic region fell in April and that US initial jobless claims fell less than expected last week. This dampened optimism about the economy and the outlook for oil demand.
Oil's slip from the session peak came after both Brent and US crude were lifted as the dollar tumbled a third straight day and the dollar index neared an all time low.
Foreign exchange investors fretted over ultra-low US interest rates, S&P's threat of a US credit rating downgrade, and the euro's potential as an alternative reserve currency.
Geopolitical threats to oil supplies in Africa and the Middle East remained supportive and brokers and analysts said the risk would limit incentive to take profits after this week's rally.
Brent crude for June fell 41 cents to $123.44 a barrel by 12:05 p.m. (1605 GMT), having earlier pushed up nearly $1 to $124.81.
US crude for June rose 30 cents to $111.75, pushing earlier to a $112.48 peak.
Trading on CME Group's New York Mercantile Exchange will be shut on Friday, with Globex electronic trading resuming at 6:00 p.m. EDT (2200 GMT) on Sunday.
"(US) crude has rallied from $105 to above $112 during the week, and above $110 you run into stronger resistance and concerns about high prices hurting demand. And the jobs claims fell, but are still above 400,000," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.
Brent was trading within a few dollars of the 32-month high of $127 a barrel reached earlier this month, a level which forecasters in consumer countries have said is already high enough to dent oil consumption.
The International Energy Agency's Chief Economist Fatih Birol said oil producing nations need to reassure the market after unrest in the Middle East and worries about supply disruptions in the region pushed crude prices to near 32-month highs.