Global oil prices fell below $111 a barrel on Tuesday, touching their lowest level in over two weeks as a Russian proposal to avert a U.S. strike on Syria gathered steam, easing concerns that a new Middle East conflict would further disrupt supplies.
Benchmark Brent crude first hit a session low after Russia offered to help put Syria's chemical weapons under international control and U.S. President Barack Obama said he saw a possible breakthrough in the crisis.
Oil prices recovered when upbeat Chinese data raised expectations of a rebound in demand from the world's No. 2 oil consumer, but resumed their decline to reach two-week lows after Syria accepted Moscow's plan.
Brent for October delivery was down $2.86 at $110.86 per barrel as of 1325 GMT after sliding more than $3 to a session low of $110.59, its weakest level since Aug. 26.
U.S. crude was down $2.64 at $106.88 a barrel.
"In terms of Syria impact, I don't think Brent will have further to go down on that... The most important issue at the moment is Libya," said Bjarne Schieldrop, chief commodity analyst at SEB.
"It seems Obama's wish is that this would become true, that they can place the chemical weapons under international protection so there is not an immediate attack."
Brent had climbed to six-month peaks above $117 and West Texas Intermediate (WTI) hit a more than two-year high of $112.24 late last month on worries that a possible U.S.-led military strike against Syria might disrupt oil supplies from the Middle East.
But the crude benchmark fell 2.1 percent on Monday, its steepest single-day decline since June 20, driven partly by receding expectations of a U.S. strike on Syria and partly by growing speculation that some Libyan supplies may come back on line.
Last week, Libya's oil output hit a post-war low of just 150,000 barrels per day compared to its capacity of 1.6 million bpd. Exports have fallen to 80,000 bpd.
No deal has been reached between Libya's government and various protest groups that have paralysed its oil production since the end of July, but a crisis committee tasked with resolving the problem will brief Libya's parliament on Tuesday.
OPEC said the world oil market was well supplied despite a plunge in Libya's output and forecast a further drop in its oil market share in 2014 due to rising supply from the United States and other countries outside the exporters group.
"We see Libyan production remaining around 500,000 barrels below its potential level for the remainder of the year," JBC analysts wrote in their daily report.
"This together with Saudi Arabia reportedly producing above 10 million barrels per day will continue to keep the downside to prices limited, even if the Syrian situation is resolved without international military action."
Obama is due to address his nation on Tuesday and will press ahead with plans to ask Congress to approve the use of force in Syria, despite its acceptance of Moscow's plan.
Also putting a floor under oil price declines is a spate of positive Chinese data that has boosted the outlook for demand.
China's industrial output rose a forecast-beating 10.4 percent in August, while retail sales increased 13.4 percent, government data showed.
Those numbers added to evidence that the Chinese economy may avoid a sharp slowdown after data showed exports rose more than predicted in August and inflation remained tame.
"It's a plus for the demand outlook for industrial commodities generally and builds on the positive picture we've been seeing out of China for the past couple of months," said Ric Spooner, chief market analyst at CMC Markets. (Additional reporting by Manolo Serapio Jr.; Editing by Dale Hudson and Jason Neely)