Crude oil for November delivery was last down 46 cents, or 0.6%, to $77.12 a barrel in electronic trading on Globex.
Earlier in the session, the contract climbed as high as $78.17 per barrel -- the highest level for a front-month contract since October 2008.
Oil prices rallied 3.2% on Thursday after government data showed a surprisingly big drop in gasoline inventories, as refineries cut production to the lowest level in more than a year.
The November contract has gained more than 11% from the Oct. 7 close of $69.57 in New York.
But in a note to clients Friday, analysts at Credit Suisse said the rally in crude prices is not fully supported by fundamentals, with demand in the U.S. still "lackluster."
They expect crude prices to revert back to their "familiar price range of $68-$75 in the coming days."
Looking further ahead, however, "demand for crude oil is likely to improve in the coming months, along with the pick up in U.S. economic activity, which should then pave the way for a more sustainable uptrend in crude-oil prices in 2010," the analysts said.
In the currency markets, the dollar gained against most of its major rivals, weighing on dollar-denominated commodities such as oil.
The dollar index (DXY 75.70, +0.21, +0.28%) , which measures the performance of the greenback against a basket of other major currencies, rose 0.2% to 75.606.
Big drop in gasoline supplies
Gasoline inventories fell by 5.2 million barrels in the week ended Oct. 9, the Energy Information Administration reported Thursday. Analysts polled by Platts had expected a modest build-up.
Gasoline production fell to 8.45 million barrels a day last week, the lowest level since last September. See Thursday's Futures Movers.
"Cues for a rebound in the underlying demand on the oil market are missing," wrote analysts at Commerzbank in a note to clients. "Hence, we remain skeptical about the sustainability of the price increase."
Because of positive market sentiment, however, the oil price is likely to rise further in the short term and could reach $80 a barrel during the next days, they said.
Also on Globex, November reformulated gasoline fell 2 cents to $1.93 a gallon and November heating oil dropped 1 cent to $2.00 a gallon.
November natural-gas futures fell 2 cents to $4.46 per million British thermal units.
Polya Lesova is reporter for MarketWatch, based in Frankfurt.
Myra P. Saefong is MarketWatch's assistant global markets editor, based in Tokyo.
