Crude oil dropped nearly $1 in midday trading Tuesday after news that Libya's navy opened fire on a tanker after it had loaded oil at a rebel-held port in the east of the country.
Separately, the U.S. Energy Information Administration revised its U.S. crude oil production forecasts lower, citing the effects of this year's severe winter weather on well completion.
The administration lowered its 2014 U.S. crude oil production forecast to 8.39 million barrels-per-day (bpd), down from last month's forecast of 8.42 million bpd.
Brent futures orbited $108 a barrel for most of the session, despite a worsening crisis over Ukraine that stoked supply disruption fears, but pressured by concerns over demand growth from the world's two biggest oil consumers.
In the worst East-West standoff since the Cold War, Russia said the United States had spurned an invitation to hold new talks on resolving the Ukraine crisis, the latest instance of attempts of finding a diplomatic solution stalling. The United States will also begin previously planned military training exercises in the region.
Indicating a weak demand outlook, U.S. crude inventories are expected to have risen last week as the bitter cold spell ends and as refiners take down plants for scheduled maintenance after meeting peak demand. That forecast followed data from China showing a sharp drop in exports, pointing to weakness in economic activity.
Other risk assets such as Asian markets and base metals found their feet after a rocky ride the previous session, though uncertainty about the true state of China's economy kept the mood brittle.
Oil is also drawing support from the worsening crisis in Libya. The north African nation stopped a North Korean-flagged tanker that had loaded oil from a rebel-held port, after naval forces briefly exchanged fire with the rebels, officials said.
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