Brent crude oil futures fell below $120 on Tuesday for the first time in two weeks, pressured by concern over the economic outlook and the risk that high prices could erode demand.
By 1318 GMT, Brent crude was trading $2.20 lower at $119.41 a barrel. U.S. crude for May, which expires later on Tuesday, fell $1.16 to $105.96.
Expectations that Greece would be forced to restructure its debt added to a bleak economic picture on Tuesday, a day after ratings agency S&P cut its outlook for U.S. credit.
There's still a few worries in Europe, yesterday's downgrading of the U.S. didn't really help and I think we're going to have to look at tomorrow's energy figures to give us a bit more impetus, said Rob Montefusco at Sucden Financial.
Events in the Middle East seem to be shoring up. We've had rhetoric from the Saudis that the markets are well supplied, and they're not going to be changing any quotas coming up, he noted.
Oil prices fell despite Goldman Sachs
OPEC Secretary General Abdullah al-Badri, speaking at an oil and gas trade fair in Tehran, said he did not expect oil to fall below $100 this year, even though there was no shortage in the market.
He reiterated OPEC's call on consumer nations to revise their tax systems to address what he called exceptional circumstances, so as to lessen the burden of high prices.
The Organization of the Petroleum Exporting Countries (OPEC) has so far declined to take any formal action to cool oil's rally. Underlining that stance, Iran's oil minister said on Tuesday any increase in output would not bring down prices.
Top world exporter Saudi Arabia said over the weekend it had cut oil production by 800,000 barrels per day (bpd) in March, returning output to December levels, because of weak demand.
In Europe, financial markets are increasingly convinced Greece will have to renegotiate the terms of its public debt, recognizing that its economy cannot grow fast enough to service a burden that is set to swell to 160 percent of national output.
Concerns about how China's attempts to slow economic growth could impact oil demand, as well as high crude inventories in the United States were also pressuring oil prices.
Later on Tuesday, the Americam Petroleum Institute will release its weekly oil data at 2030 GMT.
Unrest in the Middle East remained a potential threat to supply as fighting escalated in Syria on Tuesday, while tension in Bahrain continued to require the presence of Saudi and UAE forces there.
In Libya, which pumped 1.6 million bpd or almost 2 percent of world supply before the conflict, oil trade remains at a virtual standstill.
The tension does not seem to be getting any better, said John Vautrain of consulting firm Purvin & Gertz. And we've now got some growing tension between Iran and Saudi Arabia. Brent still could go up in the next week or two.
(Additional reporting by Ikuko Kurahone; editing by Alex Lawler and Jason Neely)