Brent crude oil slipped below $112 on Monday, ending a three-day rally as economic worries and concerns about oversupply offset fears of unrest in North Africa.
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Global oil supply exceeded demand throughout 2012, inflating oil inventories and providing a sizeable cushion to cope with any potential supply disruption.
The Organization of the Petroleum Exporting Countries (OPEC) has begun to reduce output and pumped its lowest volumes in more than a year in December in an attempt to head off a price fall.
But many investors argue the action may have come too late and oil prices are likely to slip in the next few weeks.
"The over-riding fundamental feeling in the market is that crude oil is over-supplied in 2013," said Tony Nunan, an oil risk manager at Mitsubishi.
Brent futures for slipped 37 cents to $111.52 per barrel by 1247 GMT. U.S. crude shed 40 cents to $95.16 per barrel after touching a four-month high last week.
U.S. markets were closed on Monday for a holiday.
Oil analysts at U.S. brokerage Jefferies Bache say the rally in U.S. crude futures may be over for a while and the next move is likely to be downwards.
"We are in process of shifting from a bullish to a bearish trading stance with the extent of price declines into month's end heavily reliant upon economic guidance," they wrote in a note to clients.
Worries about the global economy and its impact on fuel demand were renewed after U.S. consumer sentiment dropped to the lowest in a year in January reflecting uncertainty surrounding the country's debt crisis.
Demand worries were accentuated by OPEC's report last week that indicated that oil supply will comfortably outstrip demand in the first half of 2013, even after an output cut by Saudi Arabia late last year.
The International Energy Agency said a rebound in China's demand and Saudi's production cut may tighten the market, but added it was too soon to be concerned about that.
The U.S. Energy Information Administration (EIA) said it expected U.S. crude production to rise by the largest amount on record in 2013, adding to a global over-supply.
Unrest in the Middle East and North Africa region, the world's biggest source of crude supply, is still supporting prices.
World attention last week was focused on an Islamic militant attack on an Algerian gas field, which claimed 80 lives of Western hostages and militants.
Late last week, Libya rushed to beef up security at its oil fields and energy firms were considering similar measures in Egypt as Islamist militants threatened to attack new installations in North Africa. (Additional reporting by Ramya Venugopal in Singapore; editing by William Hardy)