Brent crude futures fell in volatile trade on Monday as traders weighed concerns about the economic health of the euro zone against Iran's threats to shut a key oil-shipping route.
A drop in German industrial output for November served as a reminder that even the European Union's powerhouse faces challenges, while German Chancellor Angela Merkel and French President Nicolas Sarkozy met to discuss measures to boost growth and fight rising unemployment.
February Brent crude futures were 48 cents lower at $112.58 a barrel by 1450 GMT, after gaining more than 5 percent last week. On the New York Mercantile Exchange, February U.S. light crude futures were down 93 cents at $100.63 a barrel, having fallen to lows earlier of $100.54.
Other euro zone November data added to the gloom, with retail sales down 0.8 percent, much weaker than a Reuters poll forecast for a fall of 0.2 percent, while the number of unemployed rose for a seventh consecutive month.
Tensions with Iran, which has threatened to block the Strait of Hormuz if sanctions imposed by the United States and planned by the European Union affect its exports, continued to lend support to prices after the country confirmed it had started uranium enrichment at its Fordow nuclear plant.
"Overall the geopolitical premium is supporting amid tensions with Iran, but on the other hand the price of crude in euros remains high and will hurt demand in Europe," Olivier Jakob from Zug-based consultancy Petromatrix said.
Production of Nigeria's average 2 million barrels of crude oil a day carried on as normal despite the strike, sources at two international oil companies and the state firm told Reuters.
The West has plans to use strategic oil stocks to offset most of the 16 million barrels per day (bpd) of crude passing through the Strait of Hormuz should Iran block it, industry sources and diplomats told Reuters.
The International Energy Agency (IEA) may release up to 14 million bpd of government-owned oil stored in the United States, Europe, Japan and other importers, a rate that could be kept up for a month.
Such a release is likely to limit the impact of any blockade of the Strait, which is unlikely to last beyond a few weeks, analysts at Morgan Stanley said in a report.
"If the impact is limited to 10 million bpd for three weeks, or 210 million barrels, this loss could be easily replaced by an SPR (strategic petroleum reserves) crude release until the Strait is reopened," the report said.
If the blockade is limited to one month, the impact is unlikely to be dramatic, according to Vienna-based JCB Energy.
"If a potential blockade is limited to a maximum of one month, the physical impact would not be that dramatic, given strong IEA action and the fact that most barrels would only be delayed but not actually lost. Prices would still spike in an unpredictable way, depending on the trading community's perception of the situation," JBC said in a note.
India's state-run Hindustan Petroleum Corp will double the volume of Saudi crude it imports in an annual deal beginning in April, a move that could potentially replace some of its Iranian supplies. Two sources said the new deal would be for 60,000 bpd, versus around 30,000 bpd this year.
This could see funds selling off more than $6 billion worth of U.S. crude futures and buying more than $5.4 billion of Brent crude, analysts estimate, which is likely to create short-term tremors in the market.
Expectations of the re-weighting, which was announced two months ago to better reflect market fundamentals, led the closely watched Brent/WTI spread <CL-LCO1=R> to widen by nearly $3 a barrel last week to near its widest point since mid-November. The spread tightened by 11 cents to $11.96 by 1449 GMT. (Additional reporting by Seng Li Peng and Francis Kan in Singapore; editing by Jane Baird)