Oil fell towards $106 per barrel on Friday as a firmer dollar spurred a dip from an eight-week high hit the previous session due to supply worries linked to tension in the Middle East and hopes of an economic stimulus in the United States.

"I think after seven straight upward closes it's not surprising to see a slight retracement, not really reading much more into it," said Tony Machacek, an oil futures broker at Jefferies Bache.

Brent crude was down $1.28 at $106.52 a barrel at 1335 GMT, but still headed for its longest winning streak since the end of February, having gained about 18 percent over the four week period.

U.S. August crude was down $1.39 cents at $91.27 a barrel around the same time. It is on track for an almost 6 percent gain this week, its third weekly gain in four.

Concerns over supply from the Middle East has underpinned some of the gains made in oil prices as fighting in Syria has intensified and after an attack on Israeli tourists in Bulgaria that Israel blamed on Iran.

Iran's oil exports have halved in the four months from February to June as a result of the sanctions, but imports this month are expected to steady as Iran's top oil buyer, China, has agreed to load full contracted volumes of Iranian oil in July.

A freight dispute had threatened to delay vessels loading crude destined for China, which would have been a further blow to Iran's efforts to keep oil exports flowing.

Tension in the Middle East was only part of the story behind oil's winning streak this month, analysts said.

"While the market's reassessment of the geopolitical political premium is a significant factor behind rising prices... We see it rather as a correction to the excessive slump to just $89.23 (Brent) on June 21," wrote Vienna-based consultancy JBC Energy in a daily note to clients.

Limited global spare capacity on the supply side combined with seasonal upticks in oil consumption could support further price increases, it added.

"Middle East tensions now mean that supply concerns are entering the crude oil equation which is creating an upward price pressure," Tim Waterer, senior trader at CMC Market, said in a report.

"With the added element of potential QE3 (quantitative easing) keeping a lid on the dollar, it would appear that the recent rally in oil still has room to move on the upside with a return to $100 per barrel now a realistic proposition."

Recent weak U.S data showing a surge in new claims for jobless aid and weaker factory activity in the U.S. Mid-Atlantic region has raised hopes the Federal Reserve will take action to stimulate the economy.

More stimulus measures to boost growth may weaken the dollar, boosting oil and other dollar-denominated commodities.

On the other hand, hopes of a stimulus in China retreated after Beijing issued a reminder to local governments to keep clamping down on property speculation, underlining official concerns about renewed inflationary pressures even as China's broader economy slows.

"Risk is being take off the table after the official Xinhua news agency reported that China won't loosen property ownership rules. This news has copper futures in full retreat and is weighing on other commodities as well" said Addison Armstrong, senior director at Tradition Energy in Connecticut in a note. (Additional reporting by Manash Goswami; Editing by Anthony Barker)