Oil prices dipped in heavy trading on Tuesday, weighed down by German economic data and concerns about the brewing fight over the U.S. debt ceiling stoked concerns about fuel demand.
Crude prices were weighed down early after data showed the German economy contracted by 0.5 percent in the fourth quarter, more than had been expected. Oil markets have been weighed down by ongoing worries about the U.S. and euro zone economies over the past year, as fuel demand continues to struggle.
Pressure also came after comments from the debate over the U.S. debt limit, with traders eyeing comments from Federal Reserve Chairman Ben Bernanke on Monday. Bernanke urged U.S. lawmakers to lift the country's ceiling to avoid a potentially disastrous default.
"I think the warnings by the Fed Chairman about the debt ceiling seems to have taken the wind out of yesterday's strong close," said Gene McGillian, analyst for Tradition Energy in Stamford, Connecticut, referring to gains seen in Brent and U.S. crude on Monday.
"You also had contracting German GDP which also throws a little cold water on the idea the economy is improving nicely."
Adding to fuel demand worries, weekly U.S. oil inventory data due out later Tuesday was expected to show builds in gasoline, distillate and crude inventories, according to a Reuters poll of analysts.
Front-month Brent crude for February delivery, which expires on Wednesday, fell more deeply than later months, trading down $1.58 to settle at $110.30 a barrel. The more heavily traded March Brent contract fell $1.32 to settle at $109.63 a barrel.
U.S. oil fell 86 cents to settle at $93.28 a barrel, edging down to below 64 on the 14-day relative strength index, after touching the 70 level on Monday, typically viewed as a technical signal that a commodity has been overbought.
Brent trading volumes were strong, up nearly 34 percent from the 30-day moving average, while U.S. crude was nearly 30 percent higher than that average.
While most of the oil complex traded lower, gas oil futures were up slightly for most of the day before edging lower late, supported by cold weather in Europe. Trading volumes were more than double the 30-day moving average.
Analysts said oil prices found some support from data showing U.S. retail sales rose more than expected in December as Americans shrugged off the threat of higher taxes and bought a range of goods, suggesting momentum in consumer spending as the year ended.
Worries about supply disruption from the Middle East have helped counter demand weakness in recent months. A senior U.N. nuclear watchdog official said on Tuesday he was aiming for an agreement with Iran this week on a framework deal enabling his inspectors to investigate suspected nuclear bomb research.
The West has applied the toughest sanctions ever in an attempt to force Tehran to end its nuclear program. Iran, which says it needs the technology to generate electricity, has threatened to block the Strait of Hormuz if it is attacked. (Reporting by Matthew Robinson in New York; Ron Bousso in London; Manash Goswami in Singapore; Editing by Nick Zieminski and Marguerita Choy)