Brent crude oil prices retraced earlier steep losses on Tuesday as investors worried that central banks, following Japan's example, could begin to rein in their loose monetary policies.
Oil joined equity markets, the dollar, bond prices and other commodities, such as gold and copper, in an investor pullback sparked by the Bank of Japan's decision not to follow up its $1.4 trillion stimulus program announced in April.
After sharp early-session drops, Brent and U.S. crude oil both pared losses but remained down at the close of the trading session.
"The Bank of Japan put a little damper on the idea that stimulus measures are going to continue to drive us," said Gene McGillian, an analyst with Tradition Energy in Stamford, Connecticut.
Brent crude settled down 99 cents at $102.96 a barrel, after earlier losing more than $2.
U.S. crude oil shed 39 cents to end at $95.38 after briefly falling to $94.04, a shade below its 100-day moving average of $94.07.
McGillian noted that recent rallies towards $97 for U.S. crude have quickly subsided in the absence of clear signs that the U.S. economy is recovering.
Brent crude has traded within a band of around $100 to $105 since early May. U.S. crude has similarly spent the last five weeks largely within the range from $91 to $97.
Brent's premium to U.S. crude narrowed on Tuesday to $7.43 in intraday trading, its lowest since May 22, before settling at $7.58.
The spread has narrowed in each of the last five sessions as maintenance issues in the North Sea have been resolved and traders expect U.S. refineries to scale up their runs, drawing down crude stocks.
The 200,000 barrel per day Buzzard oilfield in Britain's North Sea was reported on Monday to have returned to full production following last week's outages.
"There's an expectation, relatively speaking, that demand is going to be stronger in the U.S., and that's supporting U.S. crude," said Phil Flynn, an energy analyst at Price Futures Group in Chicago, Illinois. "That's one of the major factors for the spread unwinding."
The Organization of the Petroleum Exporting Countries (OPEC) on Tuesday trimmed its forecast for 2013 world oil demand growth by 10,000 barrels per day (bpd) to 780,000 bpd.
But it expects demand to grow more quickly during the rest of the year than in the first half due to economic recovery and higher seasonal consumption, it said in a monthly report.
The U.S. Energy Information Administration also cut both its 2013 and 2014 world oil demand growth forecasts by 20,000 barrels per day on Tuesday.
The EIA reported Tuesday that oil demand in developing countries in April surpassed that of wealthy nations for the first time ever.
On Monday, the EIA revised its estimate on U.S. shale oil reserves to 58 billion barrels, up from 32 billion in 2011, as new drilling techniques unlocked deposits. It also global That reserves of oil in shale rock deposits will boost total world crude resources by eleven percent.
Increasing oil supplies and waning demand in China, the world's number two oil consumer, are likely to hold down prices.
Data from China showed a slowdown in the economy of the world's biggest energy consumer, with May exports weak and domestic activity struggling to pick up.
Implied oil demand rose in May at its lowest annual rate since September 2012, Reuters calculations show.
Further bearish news could surface later on Tuesday if oil stockpiles in the United States rise, as expected.
A Reuters poll of analysts expects U.S. commercial crude oil stockpiles to have risen last week on higher imports, in a counter-seasonal increase that might weigh on prices. (Additional reporting by Peg Mackey in London, Rebekah Kebede in Perth; Editing by Marguerita Choy, Andre Grenon and Gunna Dickson)