Brent crude dipped below $118 on Friday, after sharp gains a day earlier prompted investors to book profits ahead of a key US jobs report that will provide insight into the pace of economic recovery of the world's biggest oil consumer.

ICE Brent crude fell 72 cents to $117.87 a barrel by 0518 GMT, after falling as low as $117.62 earlier. US crude was at $98.51 a barrel, down 16 cents. Oil prices are headed for their second straight weekly gain, with Brent poised to rise more than 5 percent this week.

Brent jumped on Thursday by the biggest percentage in two months, hitting a three-week high as U.S. data on jobless claims and retail sales came in stronger than expected.

That prompted several economists to raise forecasts for the government's non-farm payrolls count due later on Friday.

'Traders usually turn cautious before a key data release like non-farm payrolls. The market needs a consistent flow of good news to support prices,' said Benson Wang, an analyst with Commodity Brokers in Sydney.

'There is still uncertainty over whether the IEA will release more oil and whether China really has inflation under control.'

Oil prices have rebounded about 10 percent after plunging to four-month lows following the International Energy Agency's (IEA) shock announcement on June 23 that member nations would release 60 million barrels of oil reserves.

The IEA said it would consider later this month whether to release more reserves, but does not see the program extending for longer than a month or two.

China this week raised interest rates for the third time this year in a bid to tame rising inflation, raising hopes the government's monetary tightening cycle may be nearing its end.

The country's annual inflation in June is expected to hit a near three-year peak of 6.3 per cent, according to a Reuters poll of 28 economists.

Government data showing a smaller than expected decline in US crude stocks also weighed on prices.

Crude inventories fell 889,000 barrels to 358.6 million barrels in the week to July 1, below average forecasts of a 2.3 million barrel drawdown, U.S. Energy Information Administration data showed Thursday.

Gasoline stocks unexpectedly fell 634,000 barrels to 212.5 million barrels, versus analyst projections for a 100,000-barrel build.

Distillates, which include heating oil and diesel, likewise posted a surprise 191,000-barrel fall to 142.05 million barrels, compared with a forecast rise of 700,000 barrels.-Reuters