Oil lost upward momentum, after rising to a two-week high on Monday, as a European Union rescue plan for Ireland failed to calm persistent worries about the health of other euro zone members.
As the euro weakened and the dollar rallied on worries about a spreading crisis within the euro zone, stocks fell sharply. Oil outperformed equities, supported by cold weather in Europe and concerns about security in the Gulf.
U.S. crude for January traded broadly flat at $83.76 a barrel at 10:02 a.m. ET (1502 GMT) after rising 1.5% to a high of $85.03 a barrel earlier in the day.
Oil has declined from a two-year high of $88.63 seen earlier in November due to worries that euro zone debt problems could keep a lid on growth and energy demand.
ICE Brent for January rose 12 cents to $85.70 as the dollar rose by nearly 1% against a basket of currencies .DXY and the euro hit a two-month low.
Finance ministers from the 16-nation euro zone unanimously endorsed an emergency loan package of 85 billion euros ($115 billion) to help Dublin cover bad bank debts and bridge a huge budget deficit.
"In our opinion the bailout of Ireland will not be a trend-changer until the markets have confidence that Portugal/Spain are out of danger, and for now the Irish plan has done nothing to weaken the CDS on Portugal or Spain," said Olivier Jakob from Petromatrix.
Credit default swaps reflect the cost of buying protection against a potential default by a borrower.
Some analysts noted that oil prices showed more resistance than other assets classes, with U.S. stock index futures turning negative on Monday.
"The southern European sovereign debt crisis would have to take a severe turn for the worse to derail positive commodity price trends that are finding strong support from improving fundamentals and positive market sentiment toward growth assets," Barclays Capital analysts said in a report.
Euro zone economic sentiment improved more than expected in November, data showed on Monday. Later in the week, the focus will shift to China's and European PMIs, followed by euro zone GDP data and an ECB meeting on interest rates followed by U.S. data on non-farm payrolls and unemployment.
A Reuters November oil price poll showed that most analysts were revising their price estimates upwards, while a Reuters survey of OPEC showed slightly better compliance with production curbs.
South Korean President Lee Myung-bak on Monday labeled North Korea's artillery attack on a west coast island a crime against humanity and said the South would retaliate against any further provocation.
Tensions between North and South Korea have mostly been bearish for the oil market because of the implications that war would have on demand, but other geopolitical events were having a mild bullish effect on the market, analysts said.