Protests in Egypt and the government's response intensified, making investors more wary about the unrest.
Earlier, oil prices received a boost from news that the US economy gathered speed in the fourth quarter, fueled by the biggest gain in consumer spending in more than four years and strong exports.
US crude oil for March delivery rose $2.25, or 2.6 percent, to $87.89 a barrel at 11:35 a.m. EST (1635 GMT).
In London, ICE Brent crude for March rose $1.05 to $98.44 a barrel, reaching $98.95 earlier.
The smaller gains squeezed Brent's premium over its US counterpart, which had stretched to more than $12 per barrel, its widest since January 2009.
Total US crude volume was above 822,600 lots traded just after 11:30 a.m. EST (1630 GMT), according to Reuters data, 19 percent above the 250-day average and already surpassing Thursday's 789,077-lot total.
Total Brent trading volume was above 387.000 lots traded, according to Reuters data, 1.5 percent above the 250-day average.
Meanwhile, the dollar and US Treasuries rose on Friday as concerns that protests in Egypt will intensify and spread across the Middle East drove investors to seek safer assets.
Stocks fell around the world.
The price of gold also rose on the sudden shift in market sentiment, and the Swiss franc gained along with the dollar as investors turned to currencies considered safe-havens.
On Wall Street, shares fell from 29-month highs as disappointing results by high-profile companies including Amazon and Ford added to the negative sentiment from the turmoil in Egypt.
Energy stocks declined despite a more than 2 percent surge in oil prices, as uncertainty over the weekend developments in Egypt and anemic growth in Chevron's oil reserves kept investors jittery.
The Dow Jones Industrial Average was down 66.94 points, or 0.56 percent, at 11,922.89. The Standard & Poor's 500 Index was down 11.25 points, or 0.87 percent, at 1,288.29. The Nasdaq Composite Index was down 39.72 points, or 1.44 percent, at 2,715.56.
"The market response to earnings in Microsoft, Amazon and Ford is disappointing," said Peter Boockvar, equity strategist at Miller Tabak & Co. in New York.
In commodities, spot gold prices rose $16.18, or 1.23 percent, to $1327.20.
Benchmark 10-year Treasury note yields dropped 0.04 percentage point to 3.35 percent.
In Europe, the benchmark FTSEurofirst 300 index of leading European shares fell 0.8 percent, led by mining stocks. Asia's Japan's Nikkei average ended down 1.1 percent — still weighed by the sovereign debt rating downgrade — while the MSCI world equity index dropped 1 percent.
Emerging market stocks fared worse, falling 1.3 percent.
In currencies, the dollar was up against a basket of major trading-partner currencies, with the US Dollar Index up 0.46 percent at 78.081. The euro was down 0.72 percent at $1.3627.
Against the Japanese yen, the dollar was down 0.86 percent at 82.15 from a previous session close of 82.860.
