Brent crude oil slipped towards $109 a barrel on Wednesday as investors speculated that the U.S. Federal Reserve would soon curb its commodity-friendly economic stimulus, but Middle East supply disruptions underpinned prices.
Positive U.S. retail sales on Tuesday data supported the dollar and raised expectations that the U.S. central bank will begin winding down its bond-buying as early as September.
Oil prices also shrugged off data suggesting the euro zone's longest ever recession was over, with analysts focusing on the still-sluggish growth figures and the risks posed by lingering problems in Greece, Portugal and Spain.
Brent was down 42 cents at $109.40 a barrel at 1208 GMT, while U.S. oil fell 54 cents to $106.29.
Brent oil futures for September delivery had risen for a third straight session on Tuesday, touching their highest in nearly two weeks at $110.06 a barrel.
But analysts said prices were unlikely to sustain that level because European refiners have cut run rates as disruption in OPEC members Libya and Iraq curbs supply and drives up costs.
"Crude has to balance between disruptions in Libya and Iraq and the problem of global demand from the rise of the dollar. That is going to cap gains in Brent," said Olivier Jakob, energy markets analyst at Petromatrix in Zug, Switzerland.
"You would need to see more GDP growth in Europe for a longer time before we could expect an impact on oil demand. For now, run cuts in Europe are reducing demand for crude there."
Brent had risen back above its 200-day moving average on Monday at $108.17, a technical marker watched by traders. The contract also fully breached its short-term 10- and 15-day moving averages on Tuesday.
"We expect the London market to remain rangebound in some more jittery trading here with limited downside due to constructive short-term fundamentals," Andrey Kryuchenkov of VTB Capital said.
Concerns over supply setbacks in Libya and Iraq have continued to support oil prices.
Libya's state National Oil Corp said in a statement addressed to shippers on Tuesday that it could not provide September loading schedules, normally due by now, as labour disputes at its ports have hit operations.
Maintenance at Iraq's southern oil export hub is also set to slash supplies by 500,000 barrels per day in September.
"With the supply issues, and looking at the macroeconomic picture, it does look a little better now. Even Europe is surprising on the upside," said Jim Ritterbusch, president of Chicago-based Ritterbusch & Associates.
"But the market is still oversupplied and we don't quite yet have demand at the ... levels needed to draw down the overhang."
Economic growth in the 17-member euro zone inched up 0.3 percent in the second quarter, with its two biggest economies Germany and France showing unexpected strength, data showed on Wednesday.
The American Petroleum Institute's weekly report showed on Tuesday that U.S. crude oil stockpiles fell last week, although the decrease in inventories was smaller than expected. (Additional reporting by Luke Pachymuthu in Singapore; editing by Dale Hudson and Keiron Henderson)