Oil prices dropped below $104 a barrel on Thursday as a stronger dollar weighed and disappointing corporate earnings contributed to a gloomy outlook for demand growth.
Brent crude fell 80 cents to $103.58 per barrel by 05.07 a.m. EDT, while U.S. crude was down 85 cents at $88.12.
The euro zone's spreading debt crisis, along with other political and economic factors, has caused swings in energy prices which have taken a toll on the industry.
Analysts expect volatility to continue, as the prospect of an economic stimulus in the U.S. is exerting upward pressure on the market.
"We have to keep in mind that next Wednesday there is a U.S. Fed FOMC meeting which will create some short-term flat price volatility," wrote Olivier Jakob of Petromatrix in a note on Thursday.
Oil prices have been supported by signs of a slowdown in the U.S. of late because the weak data is reinforcing expectations the Federal Reserve will introduce a third round of quantitative easing to boost the economy.
Hopes for economic stimulus in the U.S. were again raised after economic data for June released on Wednesday showed the biggest drop in single-family home sales in a year.
Shell, the second largest of the western world oil "majors", kicked off a weak quarter for oil majors, missing forecast profits. It's larger rival, ExxonMobil, was due to release results later on Thursday.
Shell's earnings fell to around $6.0 billion from $8.0 billion a year ago. The drop was due to lower oil prices and maintenance costs, CEO Peter Voser said.
The company said it was implementing a long-term strategy to cope with the volatility.
Shell's smaller European rival Statoil (STL.OL) also missed market forecasts with its second-quarter figures, although it managed to increase profit.
Adding to volatility in the short-term, geopolitical tensions have been building on fears Syrian President Bashar al-Assad will fight revolt against his regime to the end, raising the risk of sectarian warfare spreading across one of the world's most unstable oil-producing regions.
"Prices rallied more than half a percent overnight on growing worries about the implications of the conflict in Syria," ANZ analysts wrote in a note on Thursday. "We may see some of the risk premium in oil rebuild."
Syria confirmed on Monday it had chemical and biological weapons and said it would use them against external threats, prompting warnings from Washington and Moscow against using the arsenal.
Libya expects to be back to pre-war oil production in October, later than previously forecast due to interruptions and the slow return of oil services firms to the North African country, Deputy Oil Minister Omar Shakmak told Reuters.
Shakmak said current output was 1.56 million bpd, climbing back up after three major oil exporting terminals in the east, shut down by political protests before Libya's July 7 elections, restarted.