Brent crude oil fell below $103 per barrel on Tuesday, depressed by worries over the prospects for global economic growth and demand after a bearish report from the West's energy watchdog.
Economic data show the world's two biggest economies and oil consumers are slowly picking up steam, increasing demand for fuel, despite deep recession in parts of Europe. But the oil market is well supplied with rising stocks weighing on prices.
The International Energy Agency (IEA) said rapidly increasing non-OPEC oil output will meet most of the world's extra oil demand over the next few years.
"Following several years of stronger-than-expected North American supply growth, the shockwaves of rising U.S. shale gas and light tight oil and Canadian oil sands production are reaching virtually all recesses of the global oil market," the IEA said.
"The good news is that this is helping to ease a market that was relatively tight for several years," IEA Executive Director Maria van der Hoeven said in a statement.
Brent crude oil fell 50 cents to $102.32 per barrel by 1200 GMT, after settling down $1.09 on Monday. U.S. crude lost 30 cents to $94.87, after ending 87 cents lower.
A stronger dollar also helped cap oil prices. A firm dollar makes commodities priced in the greenback more expensive for holders of other currencies.
The IEA said in its semi-annual report, which analyses mid-term global oil supply and demand trends, that U.S. shale oil would help meet most of the world's new oil demand in the next five years, even if the global economy picks up steam.
This would leave demand for OPEC crude barely changed from today's levels, the agency said.
"The IEA report is a negative factor for oil," said Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt.
"But the whole of the commodities sector is down today, reflecting concerns over economic activity and demand."
The closely followed German ZEW think tank said on Tuesday its monthly poll of economic sentiment rose to 36.4 points from 36.3 in April, indicating a smaller-than-expected improvement due to the weakness of the euro zone economy.
But the U.S. economy is beginning to expand more quickly.
Hopes of a U.S. recovery are helping strengthen the U.S. crude oil benchmark, known as West Texas Intermediate or WTI, relative to Brent.
North Sea Brent held a near $20 premium for much of 2012 over WTI, but the spread has fallen to less than $8 with the completion of pipeline projects such as the Permian Express, Longhorn and West Texas Gulf Expansion.
U.S. commercial crude oil stockpiles were seen slightly higher last week after hitting record high inventories over the prior two weeks while gasoline inventories were seen lower, a preliminary Reuters poll of eight analysts showed.
The survey, ahead of weekly inventory reports from the American Petroleum Institute and the U.S. Department of Energy's Energy Information Administration, forecast crude stocks to rise 200,000 barrels on average. (Additional reporting by Manash Goswami in Singapore; Editing by William Hardy)