Oil fell nearly $1 to below $53 a barrel Tuesday on expectations U.S. inventory data would show an increase in crude stockpiles and as the greenback made gains against other currencies.
U.S. light crude for May delivery fell 81 cents to $52.99 a barrel by 1:30 p.m. EDT, reversing direction after Monday's climb to a near three-month high. London Brent crude fell 47 cents to $53.00 a barrel.
It's still difficult to make a strong case for a continued move up in crude in the face of poor underlying fundamentals, Nauman Barakat, senior vice president at Macquarie Futures USA, said in a note.
Analysts said they expected oil inventory data to be released by the American Petroleum Institute on Tuesday and the U.S. Energy Information Administration on Wednesday would show a 1.1 million barrel build in crude stockpiles.
Energy demand in the world's biggest consumer has been hard-hit by the economic meltdown, buffering inventory levels, and global consumption has been shrinking for the first time in a quarter century.
Adding pressure, the dollar rose against the yen and the euro as currency investors bet a U.S. plan to remove bad loans from banks' balance sheets would do a lot to help the U.S. economy to recover.
A stronger dollar can hit commodity prices by reducing the purchasing power of buyers using other currencies.
Oil prices have climbed from under $33 last December, partly due to aggressive supply cuts from OPEC, but remain almost $100 below last summer's peak.
Oil prices also took a hit after media reported Tuesday that China's refined fuel stocks rose 11 percent in February despite a sharp post-holiday rebound in domestic sales, suggesting demand in the world's No. 2 consumer may be weaker than thought.
A strike by oil workers in Brazil entered its second day Tuesday, but output from South America's second-biggest oil producer was unaffected according to state oil company Petrobras.
Meanwhile, Nigerian oil unions on Tuesday called off plans for a workers' strike this week after the government promised to do more to improve security in the restive Niger Delta.
(Editing by John Picinich)