Oil dipped below $95 per barrel Friday after China reported that manufacturing rose at the slowest pace in over two years in June, pointing to a possible slowdown in energy demand.
By early afternoon in Europe, benchmark crude for August delivery was down 69 cents to $94.73 a barrel on the New York Mercantile Exchange after rising $4.16 over the previous two days. On Thursday, the contract settled at $95.42 a barrel.
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Trading could be volatile ahead of a long weekend in the U.S., where markets will be closed on Monday for the 4th of July holiday.
Sentiment was hurt after the China Federation of Logistics and Purchasing said its monthly purchasing managers index fell to 50.9 in June, indicating the slowest pace of growth in 28 months. The report said the trend likely augurs a further slowdown in growth brought on by inflation-fighting curbs on credit.
The price of crude eased back from Thursday, when lawmakers in Greece approved final details of a plan that will bring sweeping financial reform to its beleaguered economy and allow it to receive vital rescue loans.
That eased concerns about a spreading financial crisis in Europe, resulting in a strengthening euro against the dollar. That, in turn, gave oil a boost, since it tends to rise as the dollar falls and makes crude barrels cheaper for investors holding other currencies.
Crude has dropped from near $115 early last month amid concerns about slowing global demand.
The 28-nation International Energy Agency, which includes the U.S., was worried enough about oil's impact on the global recovery that it pledged last week to release 60 million barrels of crude and refined products onto the market in an effort to prevent another price spike.
Oil plunged after the IEA announcement. The group said it should more than make up for the loss of Libya's 1.5 million barrels of daily exports. The release is only a temporary fix, however, until additional Saudi crude reaches the market.
"We remain rather baffled by the steep increases exhibited by oil prices over the last week, occurring in spite of the IEA stock releases and questions about overall demand," said Edward Meir at MF Global in New York. "We can only assume that the weaker dollar in the wake of the 'resolution' of the Greek crisis has boosted the complex, as have some of the better macro numbers."
"Both of these variables should be viewed with some caution; the Greek problem is far from over, and neither are the cash crunches that other peripheral countries will likely be experiencing."
In London, Brent crude for August delivery was down $1.04 cents to $111.44 a barrel on the ICE Futures exchange.
In other Nymex August contracts, heating oil lost 2.44 cents to $2.9219 per gallon, gasoline fell 2.72 cents to $2.942 per gallon and natural gas retreated 4.2 cents to $4.332 per 1,000 cubic feet.