$89 a barrel on Tuesday as expectations of rising crude supplies pulled attention away from the conflict between Israel and the Palestinians.
By early afternoon in Europe, benchmark crude for December delivery was down 50 cents to $88.78 a barrel in electronic trading on the New York Mercantile Exchange.
On Monday, the contract added $2.36 to finish at $89.28 a barrel in New York, its highest point in nearly a month on rising concerns about the Middle East as well as optimism that U.S. political leaders will reach a budget deal before the end of the year, avoiding a hit to the economy.
But the price run-up may have been overdone, analysts said, pointing to more-than-adequate supplies.
Carl Larry of Oil Outlooks and Opinions said in an email commentary that U.S. oil production rose by 1 million barrels a day over the past year. In addition, U.S. lawmakers are pressing President Barack Obama to support TransCanada's proposed Keystone XL pipeline to transport crude oil from Canada to Gulf Coast refineries.
"We think that the production pace is only going to increase into 2013," Larry said. "So we're looking at two important steps to American oil independence."
While the escalating conflict between Israel and Hamas has raised concerns about Middle East crude supplies, analysts say the risk of immediate supply disruption isn't great because neither side is an oil producer.
"The oil producing countries in the surrounding area could be dragged into the conflict were it to further escalate, which justifies a risk premium on the oil price," said a report from Commerzbank in Frankfurt.
Investors will also be monitoring fresh information on U.S. stockpiles of crude and refined products.
Data for the week ending Nov. 16 is expected to show builds of 1 million barrels in crude oil stocks and 1.25 million barrels in gasoline stocks, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
The American Petroleum Institute will release its report on oil stocks later Tuesday, while the report from the Energy Department's Energy Information Administration — the market benchmark — will be out on Wednesday.
Brent crude, which is used to price international varieties of oil, was down 21 cents to $111.49 a barrel on the ICE Futures exchange in London.
In other energy futures trading on the New York Mercantile Exchange:
— Wholesale gasoline was down 1.65 cents to $2.7380 a gallon.
— Heating oil added 0.34 cent to $3.0785 a gallon.
— Natural gas gained 4.3 cents to $3.762 per 1,000 cubic feet.
Pamela Sampson in Bangkok contributed to this report.