Oil fell to near $115 a barrel on Thursday as economic weakness in Europe underscored the threat to global oil demand growth and on hopes a shaky cease-fire between Russia and Georgia would hold.
The economy of the 15-nation Euro-zone contracted by 0.2 percent in the worst second quarter for the European economy since 1995, the European Union's statistics office said.
The report comes on the heals of data showing the Japanese economy contracted by 0.6 percent in the same period and weak growth in the United States.
U.S. light, sweet crude settled down 99 cents at $115.01 a barrel after falling as low as $112.59 in a volatile trading session.
London Brent crude fell 83 cents at $112.69 a barrel.
"We've corrected quite a bit on oil. Despite a lot of bullish news, the sentiment has been bearish," Harry Tchiliguirian, senior oil analyst at BNP Paribas, said.
Cease-fire talks between Russian and Georgia aimed at resolving the conflict over the breakaway South Ossetia region were held on Thursday.
But Russian forces continued to occupy parts of the country that is a strategic transit route for oil produced from the Caspian Sea. Russian warships blocked a tanker loaded with Azeri crude oil from leaving the Georgian port of Poti on the Black Sea, the head of Azerbaijan's state oil company said.
"At the moment the market hopes that the cease-fire in Georgia will hold," said oil analyst Phil Flynn of Alaron Trading in Chicago.
Oil major BP resumed gas exports from Azerbaijan to Turkey via Georgia, but its oil pipeline to the Black Sea port of Supsa remained closed.
Repairs began on a third BP pipeline that runs through Georgia, the Baku-Tblisi-Ceyhan oil pipeline, that was damaged by an explosion last week.
Fears of a global economic slowdown helped push the U.S. dollar higher again on Thursday, extending a rally that has seen the greenback rise nearly 8 percent against the Euro since it hit a record low on July 15.
Investors seeking to hedge against inflation and the falling value of the U.S. dollar this year poured cash into energy and commodity markets, adding fuel to the rally that took oil to a record $147.27 a barrel in July.
Billionaire oil investor T. Boone Pickens told Reuters on Thursday oil could continue to fall below $110 a barrel in the short term on weak gasoline demand in the United States but he predicted it would not drop below $100 a barrel.