Brent crude oil fell below $116 per barrel on Monday, slipping from 4-1/2-month highs after three weeks of gains powered by signs of improving global economic growth and concern over geopolitical tension in the Middle East.
Analysts said the market was pausing for breath after a bull-run that has added around 10 percent to oil prices since the beginning of December on increasing evidence of growth in the United States and China, the world's two biggest oil users.
Stock markets have been buoyant with Asian shares climbing to 18-month highs on Monday, and the euro has also been strong after manufacturing figures suggested the European bloc had passed the worst point in its recession.
"The market is long due a correction," VTB Capital oil and commodities markets strategist Andrey Kryuchenkov said. "The market is firmly in an uptrend, but so over-bought."
Brent fell $1.16 to settle at $115.60 per barrel. Oil was still within striking distance of a 4-1/2 month high of $117.07 reached on Friday. Brent had risen for three straight weeks.
U.S. crude dropped $1.60, or by 1.64 percent, to $96.17 per barrel, after rising for eight consecutive weeks, the longest such winning streak since July-August 2004.
"The market is likely to take a breather, consolidating," said Amrita Sen, chief oil analyst at consultancy Energy Aspects in London, adding that the market was likely to resume its uptrend. "It will grind upwards, but it won't be a smooth rise."
Economics vs Geo-Politics
The global economic outlook brightened considerably last week after U.S. payrolls rose by 157,000 last month, while the Institute for Supply Management said its index of national factory activity rose to its highest since April.
Other purchasing manager surveys showed that China's factories remained on track for a mild recovery, while the euro zone manufacturing sector, despite a contraction, had its best month in a year, suggesting the worst may be over.
Data on Sunday showed China's increasingly important services sector grew for the fourth-straight month in January, although the expansion was modest.
Also underpinning oil prices were supply concerns stemming from rising tensions in the Middle East, the world's biggest source of crude.
A suicide bomber detonated a truck packed with explosives in the Iraqi city of Kirkuk on Sunday, killing at least 33 people. The blast was the third major attack in weeks in or near the city of Arabs, Kurds, and Turkmen, at the heart of a dispute between Iraq's central government and the autonomous Kurdistan region.
Iran, facing stiff sanctions from the U.S. and Europe over its nuclear program, said on Sunday it was open to a U.S. offer of direct talks to try to resolve the dispute.
It said six world powers had suggested a new round of nuclear negotiations this month, but did not commit itself to either proposal.
President Bashar al-Assad accused Israel on Sunday of trying to destabilize Syria by attacking a military research base outside Damascus last week, and said Syria was able to confront "current threats ... and aggression" against it.
Elsewhere, Yemen confirmed that a ship intercepted last month off its coast was an Iranian vessel trying to smuggle explosives and surface-to-air missiles to the country, the state news agency Saba reported.