Brent futures slipped below US$114 a barrel on Monday, reversing some of the gains made in the previous session on worry about China's demand growth as manufacturing output in the world's second biggest oil consumer pulled back from two-year highs.
The HSBC flash purchasing managers' index (PMI) for February slipped to 50.4, down from the previous month's final reading of 52.3, the best since January 2011. Further losses on Brent were stemmed as investor waited to see if Italy's elections will produce a stable government.
Front-month Brent slipped 18 cents to US$113.92 a barrel by 0331 GMT, after settling 0.5 percent higher on Friday. US oil declined 11 cents to US$93.02, after ending 29 cents up at the end of last week.
"The reason for the decline this morning is the China PMI numbers, but prices have not lost much ground," said Ken Hasegawa, a commodity sales manager at Newedge in Tokyo. "Oil will trade in a tight range today till Italy's election results are out. Investors want to get a sense how things will unfold in Europe."
Italians finish voting on Monday in one of the most closely watched and unpredictable elections in years, with rising concern that the ballot may not produce a government strong enough to pull Italy from its economic slump.
For the euro zone, the stakes are high. Italy is the third largest economy in the 17-member bloc and the prospect of political stalemate could reawaken the threat of dangerous market instability.
Hasegawa expects Brent to trade within a tight range of US$113 and US$115 a barrel over the next 24 hours.
Brent is expected to hover above a support at US$113.59 for one more session before breaking this level and falling to $111.97, while US oil may rebound to US$94.17, according to Reuters technical analyst Wang Tao.
Over in the United States, investors await testimony on Tuesday from Fed Chairman Ben Bernanke for further clues of when the Fed may slow or stop buying bonds.
Financial markets were rattled last week after minutes of the Fed's January meeting suggested some Fed officials were mulling scaling back its strong monetary stimulus earlier than expected. Brent fell nearly 2 percent on Thursday alone, its steepest since November, during the two-day sell-off fuelled by those worries. It ended the week down 3 percent.
Markets are also worried about the outcome of budget cuts in the United States as the White House and the Republicans have so far failed to reach an agreement. The Republicans want President Barack Obama to be flexible in how cuts are made, while the White House says the law forces across-the-board cuts.
With five days left before US$85bn is slashed from US government budgets, the White House issued more dire warnings about the harm the cuts will do to Americans, breaking down the loss of jobs and services to each of the states.
"The Italian election result and the outcome of Congressional negotiations on the automatic US budget cuts are the major risk events for this week," Ric Spooner, chief market analyst at CMC Markets said in a report. "Both have the potential to influence consensus attitudes toward global risk."