One day after surging more than 3 per cent amid one of the biggest commodity-sector rallies ever, August Brent crude fell 91 cents to settle at $99.77 a barrel. NYMEX crude dipped 60 cents to $87.06 a barrel by 1745 GMT, with volumes thinned by the U.S. Independence Day holiday.
Investors have flooded back into raw materials at the start of the third quarter, betting that beaten-down markets such as oil, copper and gold may fare better if central banks step up efforts to stoke the world economy. The European Central Bank is expected to cut its main refinancing rate to a record low below 1 per cent at its policy meeting on Thursday.
"After a strong rally yesterday, with the U.S. liquidity out of the market, the market is moving to a level that is easier to defend," Filip Petersson, an analyst at SEB in Stockholm, said.
"I expect it to be a bit bearish, but a 1 per cent fall after several days with several percent rises is not a big move."
Brent has rallied nearly 12 per cent since hitting its lowest price since 2010 two weeks ago, aided in part by rising tension over Iran's nuclear programme and the implementation of tough new European and U.S. sanctions.
Data releases from across the globe continue to add weight to the view that the world economy is slowing. A survey of private Chinese service-sector firms showed their activity growing at the slowest rate in 10 months in June, while another survey revealed that Germany's services sector unexpectedly stagnated last month, ending an eight-month period of expansion.
Investors are hoping for quantitative easing (QE) from the U.S. Federal Reserve, which could become more likely if there is weak nonfarm payrolls data on Friday.
"If the data at the end of the week disappoint, it could increase the likelihood of QE, which would weaken the dollar and support growth," Gareth Lewis-Davies at BNP Paribas said.
Iran has threatened to destroy U.S. military bases across the Middle East and target Israel within minutes of being attacked, Iranian media reported on Wednesday, as Revolutionary Guards extended test-firing of ballistic missiles into a third day.
While the weak data was seen as a potential factor that could prompt stimulus policies, it was also seen as limiting the prospects for demand growth for commodities such as oil.
Deutsche Bank and Societe Generale have lowered their 2013 Brent price outlooks on expectations of weak demand due to the gloomy economic climate.
However U.S. crude oil stocks fell more than expected last week, according to data released by industry group the American Petroleum Institute on Tuesday, helping to support prices.
Crude inventories tumbled by 3 million barrels in the week to June 29, well above the 1.9-million-barrel drawdown forecast by analysts, with Gulf Coast stocks off nearly 4.3 million barrels.
Wednesday's U.S. holiday pushes back the U.S. Energy Information Administration's inventory data to 11 a.m. EDT (1500 GMT) on Thursday.
Also supporting prices, a strike in Norway's oil sector has slowed shipments from the world's eighth-largest exporter, traders said, as unions and employers were due to meet in an attempt to put an end to the dispute over pensions.
Copyright @Thomson Reuters 2012