Brent held lower after briefly rising to top $38 a barrel. On Friday, brent closed at its lowest in nearly seven years.
Both brent and WTI are off more than 10 percent since OPEC on Dec. 4 abandoned its output ceiling. Since last year, OPEC has been pumping near record levels in an effort to drive higher-cost producers such as U.S. shale firms out of the market.
Natural gas pared losses to hold about 4.8 percent lower after hitting a low of $1.86, its lowest in nearly 14 years.
"Even though we're talking about oil, the focus is on the Fed. It's going to have a much bigger impact on stock prices in the near-term than oil prices," said Vahan Janjigian, editor of Bottom Line's Money Masters Stock Report and CIO at Greenwich Wealth Management.
Markets are pricing in a roughly 80 percent chance of a hike on Wednesday, according to CME's FedWatch tool.
"I don't think the rate hike matters. I think the market has certainly played into that. I think what matters more is the verbiage (of the Fed commentary)," Roberts said.
Read More Oil and Fed are wildcards for the week ahead
The S&P 500 ended higher, led by telecommunication stocks, after dipping below the psychologically key level of 2,000 in intraday trade for the first time since mid-October.
Marc Chaikin, CEO of Chaikin Analytics, said attributed the intraday decline in stocks to "nervousness ahead of the Fed meeting and the ripple effect of the junk bond situation Friday with Third Avenue (Management) shutting off liquidity."
"I think people are hoping that buyers would step in but then with the price of crude dropping again (this morning) and the mining stocks down ... it's kind of hard," he said.
Materials lost 1.5 percent as the only decliner in the S&P 500. Freeport-McMoRan fell more than 6 percent, while Dow Chemical, Newmont Mining and DuPont were each down more than 3.5 percent as the greatest sector laggards.
Dow Chemical and DuPont closed more than 3.5 percent lower Monday. The two chemical giants ended last week with gains of 0.1 percent and about 4 percent, respectively, after agreeing to merge in an all-stock deal. Over the weekend, activist Daniel Loeb called for the removal of Dow Chemical CEO Andrew Liveris based on the timing of the merger, The Wall Street Journal reported.
The Alerian MLP ETF (AMLP), which tracks large- and mid-cap energy master limited partnerships, closed down 3.1 percent. The ETF is down more than 40 percent for the year so far.
The Nasdaq composite managed to close higher as major tech names such as Microsoft, Amazon, Facebook and shares of Alphabet jumped.
Apple declined 0.6 percent, amid news that Morgan Stanley cut its estimate for 2016 iPhone units and earnings estimates. The firm also cut its target to $143 a share from $152, but remains "overweight" on the stock.
The U.S. dollar traded a touch higher against major world currencies, with the euro just below $1.10 and the yen at 120.96 yen against the greenback in the close.
Treasury yields held higher, with the 2-year yield near 0.94 percent and the 10-year yield at 2.22 percent.
"I just think it's a partial reversal of the flight to safety we saw last week. Some of the fear in the market backing off," said Ben Garber, economist at Moody's Analytics Capital Markets.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, held below 23 after briefly topping 26.
On Friday, U.S. stocks closed out a volatile week with sharp losses, as oil hit near-seven-year lows and another corporate merger weighed ahead of the Fed's highly anticipated decision on rates next week. The S&P 500 had its worst week since the middle of August, while the Dow Jones industrial average and the Nasdaq composite had their worst week in a month.
News of Third Avenue Management preventing withdrawals from its roughly $800 million junk bond fund also unnerved markets Friday.
"It's not just the one fund by itself but, are there more?" said Nick Raich, CEO of The Earnings Scout.
The SPDR Barclays High Yield Bond ETF (JNK) and the iShares iBoxx USD High Yield Corporate Bond ETF (HYG) both closed nearly 1 percent lower Monday, after plunging 2 percent Friday. Trade volume in HYG was its second highest ever, after a record volume Friday.