BRENT crude oil slipped to around $93 per barrel on Thursday as worries a deepening eurozone crisis would curb economic growth and energy demand outweighed a cut in Norwegian oil output.
EU leaders meet in Brussels on Thursday openly divided, with German Chancellor Angela Merkel pitting herself against France and Italy, insisting they put the bloc's fundamental problems ahead of emergency action.
Analysts say the eurozone debt and financial crisis is stifling activity in the region, eroding investor confidence and dampening economic growth in other parts of the world.
A cut in Norwegian production due to a strike by oil workers has tightened the supply balance in the North Sea, adding some positive sentiment to the crude market, traders said.
Brent crude oil futures for August fell $1,03 to a low of $92,47 per barrel before recovering to trade around $93,15 by 11.15am GMT. The Brent contract settled at $93,50 on Wednesday, the highest in just over a week. US crude futures fell 10 cents to $80,11.
"The Norwegian strike is lending some support, at least at the moment, but market sentiment is very negative," said Carsten Fritsch, commodities analyst at Commerzbank in Frankfurt.
"There are concerns that the EU summit will disappoint."
The government of Norway, the world's eighth-largest oil exporter, is not about to intervene in a strike by oil workers, the country's labour minister has said, despite figures showing a larger-than-expected drop in output.
Oil production in Norway is down by about 240000 barrels per day (bpd), or 15% of capacity, a local industry association said.
State-controlled oil and gas firm Statoil shut its key Oseberg field centre on Sunday and other oilfields including Statoil's Heidrun field, and BP's Skarv field have also been targeted by the strike.
"So far, the strike has not yet resulted in any actual supply shortfalls, although this is likely to change if the strike escalates further," said Commerzbank's Fritsch.
But financial markets are dominated by worries that the eurozone crisis will bring recession and curb growth. Fuel demand across the bloc is falling as poverty and unemployment increase.
European Union leaders start a two-day meeting at 1pm GMT with no agreement on how to cope with a spiralling debt crisis that has forced five countries to seek financial bailouts.
US economic activity has held up fairly well so far, data showed on Wednesday. Demand for long-lasting US manufactured goods has rebounded while a gauge of business spending plans rose.
Analysts worry the US momentum may not be sustained.
"A few data points does not change the underlying sentiment that the global economy is slowing but it was enough of a data improvement to move some of the shorts to the sidelines," said Dominick Chirichella of New York's Energy Management Institute.
He said he saw the recent rise in crude prices as "a short-covering rally and not a structural change in the market", which had seen slowing demand and ample supply:
"Saudi Arabia and Opec in general are producing at the highest rate in several years. In fact Iraq is now producing at the highest level in about 20 years," Mr Chirichella said.
Investors are also keeping a close watch on the impact of Western sanctions on Iranian crude supply. New US sanctions on Iran take effect on Thursday and a full EU embargo on Iranian crude begins on July 1.
Opec's second-largest producer, Iran, acknowledged for the first time on Wednesday that its oil exports had fallen sharply, down 20 to 30% from normal volumes of 2,2-million barrels daily.