NEW YORK (CNNMoney.com) -- Oil prices sank Friday, settling down more than $5 for the week, after two stronger-than-expected economic reports calmed nervous investors. Lingering concerns over a drop in demand also pressured prices lower.

Light, sweet crude for September delivery fell $2.23 to settle at $123.26 a barrel, the lowest closing price since June 4. For the week, prices fell $5.62.

Earlier in the session prices reached as low as $122.50 a barrel, the lowest intraday level since June 5, when prices touched $121.61.

Prices fell after a government report showed new home sales were stronger than expected last month, and a survey from the University of Michigan revealed that the government's economic stimulus package had boosted consumer sentiment.

Both reports, on top of an unexpected increase in orders for durable goods, drove investors away from oil which has been used as a hedge against economic downturn.

"[Investors] bought oil because they were worried about the economy," said Phil Flynn, senior market analyst with Alaron Trading in Chicago.

The Dow industrials gained nearly 100 points in Friday morning trading and were still up about 40 points midday, following a sharp selloff the previous day, as investors poured money into stocks. These reports have given investors "a little more confidence that the world isn't coming to an end," added Flynn.

Demand: Oil prices have slipped in recent days as reports have confirmed that demand has indeed declined, largely due to high fuel prices.

An Energy Department report released Wednesday showed that gasoline demand in the United States last week had fallen 2.4% from the same period last year. And a weekly survey of filling station credit card swipes from MasterCard recorded declining demand for the 13th week in a row.

Worries about falling demand have helped push prices down $24 a barrel from a record trading high of $147.27 set July 11.

The fall in July demand has been of particular concern to investors because Americans have traditionally used more fuel in the summer.

"This is when we should be struggling with demand, but the demand isn't there," said Flynn.

Gas responds: Average gasoline prices have dropped in response to oil's decline, even though they remain above $4 a gallon at the pump, according to surveys by motorist group AAA.

And some investors fear that the U.S. demand decline may spread to other countries as well.

"The ever-deteriorating demand picture in the U.S. only seems to be getting from bad to worse and this contagion may even be spreading to China," wrote Nauman Barakat, energy trader at Macquarie Futures in a report Thursday.

Fragile market: Despite the trend, "there's always the possibility that something could happen in this market to turn it around," said Peter Beutel, oil analyst at Cameron Hanover.

International oil supplies remain tight. Tensions between the West and Iran, the second-largest producing member of the Organization of Oil Exporting Countries, and militant attacks in Nigeria, Africa's largest oil producer, have been one of the main concerns that drove oil prices to their record highs.

Hurricanes in the Gulf of Mexico have also been a traditional worry this time of year. Hurricane Dolly drove prices up briefly this week before it was clear the storm would miss vital oil facilities.