Oil prices fell more than $1 on Monday after Iran agreed to resume talks over its nuclear program, easing fears of a supply disruption in the Middle East.
Prices were also under pressure on concerns about the pace of U.S. economic recovery after data last week showed U.S. employers had hired far fewer workers in March than in previous months. Job growth in the world's biggest oil consumer slowed to 120,000, the smallest increase since October.
Brent crude was down $1.19 a barrel to $122.24 by 1110 GMT after slipping below $122 earlier in the day. U.S. oil traded $1.46 a barrel lower at $101.85.
If there are some good vibrations from the Iranian talks and they don't immediately break down, the markets will have hopes that the European Union may lighten the sanctions on Iran, at least on the insurance front, said Olivier Jakob from Petromatrix.
At the moment, the sanctions are having a much stronger impact than anticipated, mostly through insurance, which could lead to a full interruption of Iranian oil flows, he added.
Iranian media and Western officials said talks over Tehran's nuclear program, which collapsed more than a year ago, would begin on Saturday in Istanbul.
Getting Iran to suspend high-level uranium enrichment and close a nuclear facility built deep under a mountain near the holy city of Qom were near-term priorities for the United States and its allies, a senior U.S. official said.
The EU will impose a full embargo on Iranian oil imports from July, while the United States is pressing major importers of Iranian oil in Asia to reduce purchases as well.
Questions are arising whether Tehran will be able to continue exporting oil at all as maritime insurance firms around the world walk away from covering tankers carrying Iranian oil.
Worries that the stand-off between Tehran and the West would escalate and disrupt oil exports from the Middle East have boosted Brent prices by nearly $20 so far this year to a high of $128.40 touched last month.
The talks are good news. They are going to ease some stress from the oil market but not enough to bring oil below its current trading range, said Ken Hasegawa, a commodity derivatives manager at Newedge Brokerage in Tokyo.
China's annual consumer inflation rose by a faster-than-expected 3.6 percent in March, with volatile food prices leading the increase.
The acceleration may not hurt the country's oil demand growth, however. Economists saw the spike as temporary, reinforcing the view that Beijing has room to loosen credit and support economic growth.
Concerns about demand growth from the United States and Europe as investors worry about the health of these economies are keeping a lid on oil prices.
Last Friday's U.S. employment numbers were the latest to make markets nervous. Job growth was less than half the average monthly increase in the prior three months and way below the lowest estimate in a Reuters survey. Economists had expected an increase of 203,000 and the jobless rate to hold at 8.3 percent.
As markets were closed on Friday, today there is still some pricing in of weak non-farm payrolls, said Jakob.
Later this week events to determine investor sentiment, especially towards risk assets, will include the U.S. Federal Reserve's reaction to Friday's job data, the start of first-quarter earnings season and China's March GDP report.
Federal Chairman Ben Bernanke is scheduled to speak in Stone Mountain, Georgia, at 23.15 GMT on Monday.