Brent crude oil fell under $106 a barrel on Monday, erasing early gains as hopes faded that the United States and Europe would soon announce measures to shore up their fragile economies, which could boost the outlook for oil demand.
Slowing growth in the United States, the world's top oil consumer, has triggered expectations of stimulus measures from the Federal Reserve, which meets on Tuesday and Wednesday.
And a promise last week by European Central Bank President Mario Draghi to do what it takes to protect the euro raised expectations of new policy measures to solve the debt crisis when the ECB meets on Thursday.
Economic stimulus measures and strong central bank action to support banks would be expected to calm market nerves and boost demand for assets considered risky such as oil and commodities.
But analysts say markets may be hoping for too much.
"Speculation over central bank action looks like it has gone too far," said Carsten Fritsch, oil analyst at Commerzbank in Frankfurt. "The euro has already begun to retreat and oil has also started to weaken. The move upwards seems exaggerated."
Brent crude was down 60 cents to $105.87 per barrel by 1140 GMT. U.S. crude was down 20 cents at $89.93.
The move lower followed four consecutive days of rises. This month Brent has risen 8.5 percent and U.S. crude has gained 6 percent, supported largely by hopes of more economic stimulus.
"FRAGILE"
Thursday's ECB meeting is in sharp focus, given the threat the long-running euro zone crisis poses to the global economy.
Optimism of some sort of ECB action was evident across many markets on Monday, with global stocks rising to their highest in more than three weeks.
But the euro retreated.
"Draghi has to put some action behind his words last week ... The bias is towards disappointment and that's what's creeping into markets now," said Niels Christensen, currency strategist at Nordea in Copenhagen.
"The value we saw last week in euro/dollar is fragile."
Oil prices are also finding support from escalating tensions in the Middle East with rising violence in Syria threatening to further destabilise the region.
Iran is still in a face-off with the West over its nuclear programme, fuelling uncertainty about supply in the oil markets. The West insists Tehran is trying to develop a nuclear bomb, but the Islamic republic has vehemently denied this assertion.
Reuters will publish its monthly survey of OPEC oil production on Monday and attention will focus on whether Saudi Arabia is maintaining near record levels of crude output and whether Iranian production has begun to recover after several months of falls.
"The market is waiting to see if OPEC has responded to the higher oil prices of late and reduced production at all," said Fritsch.
