Brent crude oil fell to $110 on Tuesday as investors ignored the latest tension between Iran and the West and supply concerns in Africa and focused on the chances of a Greek debt default that could hit energy demand.
European policymakers are struggling to come up with a plan to save Greece from a default that would hurt the region and the global economy, depressing energy demand.
Euro zone finance ministers on Monday rejected as insufficient an offer made by bondholders to help restructure Greece's debts, sending negotiators back to the drawing board and raising the threat of a default.
Front-month Brent crude slipped 64 cents to $109.94 per barrel by 1513 GMT. U.S. crude extended losses to more than $1 at the start of open-outcry floor trading in New York, to $98.50 a barrel.
President Barack Obama said the United States would impose new sanctions on Iran over its disputed nuclear programme after the European Union agreed on Monday to ban imports of Iranian crude starting in July.
Iranian politicians responded to the EU with a renewed threat to block the Strait of Hormuz, a crucial oil chokepoint, if Iran's exports were blocked, and raised the possibility of an immediate halt to oil sales to Europe.
"Yesterday's announcement by the EU regarding an oil embargo against Iran failed to lift prices since it was well expected and pre-announced in advance," said Carsten Fritsch, a commodities analyst at Commerzbank.
"There's still some risk regarding threats to close the Strait of Hormuz, or threats from Iran to stop oil exports to the EU immediately," Fritsch said. "But it seems like the market doesn't believe Iran will do so given its dependence on oil revenues."
The five-month delay built into the EU embargo may mean it will never be fully enacted, said James Zhang, an oil analyst at Standard Bank.
"The twist is that the implementation of the embargo will not start until 1 July. We expect Iran is likely to reopen negotiation over its nuclear work before then, which could mean that the embargo might not be implemented at all," Zhang wrote in a note.
South Sudan's government said on Monday it would shut off oil production over a dispute with its northern neighbour, Sudan. South Sudan produces about 350,000 barrels per day (bpd), according to official estimates from November.
President Salva Kiir Mayardit accused Khartoum of having "looted" revenues amounting to roughly $815 million and building a tie-in pipeline to divert 120,000 bpd of southern production flowing through the north.