Brent crude oil slipped below $112 a barrel on Monday, ending a three-day rally, as pessimism over global economic growth returned traders' focus to healthy supply levels, offsetting fears of unrest in North Africa.
Global oil supply exceeded demand throughout 2012, inflating inventories and providing a sizeable cushion to cope with any potential supply disruption.
The Organization of the Petroleum Exporting Countries has begun to reduce output and pumped its lowest volumes in more than a year in December in an attempt to head off a price fall.
But some investors argue the action may have come too late and oil prices are likely to slip in the next few weeks.
"The over-riding fundamental feeling in the market is that crude oil is over-supplied in 2013," said Tony Nunan, an oil risk manager at Mitsubishi.
March Brent crude futures settled down 18 cents at $111.71 per barrel. U.S. West Texas Intermediate crude futures were off 9 cents in overnight electronic trading at $95.47 a barrel at 1649 GMT, after touching a four-month high last week.
U.S. markets were closed on Monday for a public holiday.
Oil analysts at U.S. brokerage Jefferies Bache say the rally in U.S. crude futures may be over for a while and the next move is likely to be downwards.
"We are in process of shifting from a bullish to a bearish trading stance, with the extent of price declines into month's end heavily reliant upon economic guidance," they said in a note to clients.
Worries about the global economy and its impact on fuel demand were renewed after a survey released on Friday showed U.S. consumer sentiment dropped to the lowest level in a year in January, reflecting uncertainty surrounding the country's debt crisis.
Demand worries were accentuated by OPEC's report last week that indicated oil supply will comfortably outstrip demand in the first half of 2013, even after an output cut by Saudi Arabia late last year.
The International Energy Agency said a rebound in China's demand and Saudi's production cut may tighten the market, but added it was too soon to be concerned about that.
The U.S. Energy Information Administration said it expected U.S. crude production to rise by the largest amount on record in 2013, adding to a global over-supply.
Unrest in the Middle East and North Africa region, the world's biggest source of crude supply, is still supporting prices.
World attention last week was focused on an Islamic militant attack on an Algerian gas field, which claimed the live of 80 Western hostages and militants.
Late last week, Libya rushed to beef up security at its oil fields, and energy firms were considering similar measures in Egypt as Islamist militants threatened to attack new installations in North Africa. (Additional reporting by Robert Campbell in New York and Ramya Venugopal in Singapore; Editing by Leslie Adler)