$96 a barrel Wednesday, a day after hitting a five-week high on the back of solid U.S. economic data, which raised hopes of the pace of recovery in the world's largest economy.
By early afternoon in Europe, benchmark oil for May delivery was down 40 cents to $95.94 per barrel in electronic trading on the New York Mercantile Exchange.
On Tuesday, the Nymex contract added $1.53 to finish at the five-week high of $96.34 a barrel following strong durable goods orders figures from the government and a stronger-than anticipated rise in the Standard & Poor's/Case-Shiller 20-city price index.
Though the U.S. economy is providing support to oil prices, analysts say it is too soon to forget about the debt crisis in Europe, especially after the recent events involving Cyprus. The country teetered on the brink of bankruptcy until a deal was reached early Monday to provide it some 10 billion euros ($12.9 billion) from international lenders. The deal, however, requires Cyprus to slash its oversized banking sector and inflict hefty losses on large depositors in troubled banks.
"The events in Cyprus have provided another very visible — albeit extreme — illustration of the financial problems and uncertainties in Europe which are holding back the global recovery," analysts at Capital Economics said. "Indeed, even though the Cypriot economy itself is tiny, the ramifications could still be felt worldwide, both in economic activity and in financial market volatility."
The uncertainty in Cyprus has heaped particular pressure on the euro, which makes crude oil priced in dollars a less enticing investment for traders using currencies other than the dollar. On Wednesday, the euro was down to $1.2777 from $1.2861 late Tuesday in New York.
"The weak euro is the key element that continues to dominate the markets today ... and adding further pressure to the commodity markets," Sucden Financial Research in London said in a report. "Until the situation clears, we expect further volatility and nervous trading conditions in the oil market."
Traders will also be watching for the release of fresh data on U.S. stockpiles of crude and refined products.
Data for the week ending March 22 is expected to show a build of 1.6 million barrels in crude oil stocks and a draw of 1.6 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 said Tuesday that crude stockpiles rose by 3.7 million barrels last week, while the report from the Energy Department's Energy Information Administration — the market benchmark — will be out on Wednesday.
Brent crude, used to price many kinds of oil imported by U.S. refineries, was up 5 cents to $109.41 a barrel on the ICE Futures exchange in London.
In other energy futures trading on the Nymex:
— Wholesale gasoline rose 0.39 cent to $3.1064 a gallon.
— Heating oil added 0.81 cent to $3.0069 a gallon.
— Natural gas advanced by 6.4 cents to $4.055 per 1,000 cubic feet.
Pamela Sampson in Bangkok contributed to this report.