Oil fell more than a dollar on Tuesday, pressured by fund selling and equity market weakness in response to fears of an economic slowdown in top energy consumer the United States.
U.S. light, sweet crude for March delivery fell, after a gain on Monday of $1.06. London Brent crude was down.
A series of bullish factors had helped oil prices advance above $90 a barrel on Monday, including shipping delays into the United States caused by fog in the Houston Ship Channel, attacks by Turkey on northern Iraq and an armed raid by militants on an oil pipeline hub in Nigeria.
But these ultimately did not outweigh worries about the broader economic outlook.
"It's pressure from fund liquidation brought on by the bearish economic fundamentals that could mean lower demand for oil," said Christopher Bellew, senior vice president at Bache
Major U.S. equity indexes fell more than 1 percent after publication of data that showed a big contraction in the U.S. economy's huge service sector.
"That's more fodder for a recession argument," said Joe Saluzzi, co-manager of trading at Themis Trading.
Gold, which has benefited from turmoil in the equity markets, was also under pressure and fell more than 1 percent, as profit taking kicked in after last week's all-time high.
Oil reached a record of $100.09 a barrel on Jan. 3, partly due to expectations that oil supplies will struggle to keep pace in the long-term with demand from high growth economies such as India and China.
Prices are now around $10 below those highs, largely because of fears of a recession in the United States that could mean lower oil consumption.
But some analysts say shifts in the oil price curve, which projects the price into the future, suggest a U.S. recession may already be discounted.
"The last fortnight has seen a sharp adjustment (in the curve) with the front end moving down, but with the long end of the curve flattening and in fact rising 30 months out," Citi oil analysts said in a research report.
"The suggestion is that the oil market sees limited downside risk to prices from the increasingly-discounted (first half year 2008) U.S. recession."
Fog that halted ships serving big oil refineries in parts of Texas and Louisiana on Sunday lifted for a few hours, letting some ships move in. But dense fog was again causing delays early on Tuesday.
"The market is also looking at the lower refinery run rates and thinking that crude demand is going to fall because the U.S. has passed the peak winter demand," said Mark Pervan, a senior resource analyst at the Australia & New Zealand (ANZ) Bank.
Expectations that U.S. crude inventories will likely rise for the fourth consecutive week also weighed on prices.
Data from the U.S. Energy Information Administration (EIA), due on Wednesday, is expected to show a 2.2 million-barrel build in crude stocks, a 2.1 million-barrel decline in distillates and a 1.9 million-barrel increase in gasoline inventories, a Reuters preliminary poll of analysts showed.
The Organization of the Petroleum Exporting Countries agreed in Vienna last Friday to leave output unchanged for now.
The group meets next on March 5, but Iraq's oil minister said it was too early to say if OPEC would adjust oil output.
"We will be looking at the market to see how much oil there is," Hussain al-Shahristani told Reuters.