Earlier, Brent reached its highest since September while WTI rose to its strongest since April. PHOTO: REUTERS
Brent crude was down $0.41 or 0.6% at $68.50 a barrel at 1122 GMT, while US West Texas Intermediate (WTI) crude was at $62.95, down $0.32 or 0.5%.
Prices surged during the previous two sessions, with Brent reaching its highest since September, while WTI rose to its strongest since April.
The gains followed fears of escalating conflict and potential Middle East supply disruptions after the January 3 drone strike in Baghdad that killed Qassem Soleimani, head of Iran's elite Quds Force. Iran has vowed a harsh revenge.
"We still believe in the absence of retaliation or disruptions that oil prices will trend lower over the course of the first quarter of 2020, with the market remaining well supplied over the first half," ING analysts said in a note.
Consultancy Eurasia Group said Iran is likely to focus more narrowly on US military targets instead of energy targets.
"That's not to say it won't continue low-level harassment of commercial shipping or regional energy infrastructure, but these activities will not be severe," it added.
Julius Baer analyst Carsten Menke said the Iranian side was "quite rational and strategic".
"The costs of direct military confrontation are prohibitive, and disrupting oil flows would alienate loose allies such as China and India," he said.
"The closure of the Strait of Hormuz, a key chokepoint of global oil flows, remains a very unlikely event."
However, the United States Maritime Administration website renewed its warning about threats to US commercial vessels from Iran and its proxies in the Gulf and surrounding area.
Prices also fell despite higher compliance among the Organisation of the Petroleum Exporting Countries (OPEC) on meeting production quota curbs aimed at reducing supply.
OPEC members pumped 29.50 million barrels per day (bpd) last month, down 50,000 bpd from November's revised figure, according to a Reuters survey published on Monday.
US crude oil stockpiles likely dropped for a fourth week last week as exports ramped up, although refined product stocks were expected to have risen, a Reuters poll showed on Monday.
Six analysts estimated on average that crude stocks had fallen by 4.1 million barrels in the week to January 3.
Even before Soleimani's death, investors were increasing their bullish WTI holdings, with money managers raising their net long positions in the week to December 31, the Commodity Futures Trading Commission said on Monday.
COMMENTS
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ