Brent crude fell below $100 a barrel on Tuesday after manufacturing data from China pointed to a lukewarm recovery in the second quarter, denting the outlook for fuel demand in the world's second largest oil consumer.
The flash HSBC Purchasing Managers' Index for April fell to 50.5 in April from 51.6 the month before as new export orders shrank in China, suggesting the country faces considerable headwinds.
June Brent crude had dropped 70 cents to $99.69 a barrel by 10.29am UAE time, while US crude for June delivery was down 81 cents at $88.38 a barrel.
"It's disappointing data from the previous month, but it's still above 50," said Tetsu Emori, a commodities sales manager at Astmax Investments in Tokyo. "I'm happy to buy on dips."
The PMI's 50-point level demarcates growth from contraction from the month before. The data comes after the unveiling of lower-than-expected GDP growth for China in the first quarter sparked a sell-off last week.
Brent settled above $100 on Monday for the first time in five sessions as traders saw oil below the psychological level as a bargain. The benchmark has fallen 10 percent from about $111 in early April on global growth concerns.
"People have been harping on about the recovery in the US but it seems to have fallen short of expectation with most recent data lukewarm," said Ben le Brun, a markets analyst at OptionsXpress in Sydney.
The decline has sparked speculation that OPEC could re-look at supply at its May 31 meeting although Libya has said it would seek to increase its output quota.
"Large stimulus programmes from Japan, the United States and China should support prices at around these levels as opposed to OPEC taking action," le Brun said.
In response to China's moderate growth, Saudi Arabia is expected to keep oil output steady throughout the second quarter after a 700,000 barrels per day (bpd) cut in the last two months of 2012.
Fighting in Africa's top energy producer Nigeria and a force majeure on its Bonny Light crude exports put a floor under Brent prices.
The country's oil production is beset by widespread oil thefts that had forced Royal Dutch Shell to shut its 150,000 bpd Nembe pipeline last week.
Yet supply could rise elsewhere in Africa and the Middle East with the restart of South Sudan's oil production and a lifting of European Union sanctions on Syrian crude exports.
The UN nuclear agency said it is talking with Iran to set a date for discussions on resuming an investigation there, after Iranian media reported that talks were set for May 21.
Investors will scour weekly oil inventories data from the United States due on Tuesday and Wednesday to gauge demand in the world's largest oil consumer.
U.S. commercial crude oil stockpiles are forecast to have climbed last week on increased imports, and oil products are also seen higher, a preliminary Reuters poll of five analysts showed on Monday.