Oil fell toward $76 on Tuesday as euphoria over the euro zone's $1 trillion rescue package faded, leaving doubts over the longer-term outlook for Europe's economies and their future demand for fuel.
The dollar rallied against the euro and a basket of currencies .DXY on Tuesday, and equities slipped as caution returned across financial markets.
A stronger dollar makes oil more expensive for some buyers holding alternative currencies.
U.S. crude for delivery in June fell 78 cents to $76.02 a barrel at 0822 GMT, almost $2 higher than a 12-week low hit on Friday, as the European debt crisis dampened sentiment. ICE Brent for June crude slipped 76 cents to $79.36.
"The euro rallied and then has come back down as the initial relief was over," said Stefan Graber, a commodities analyst with Credit Suisse.
"Whether confidence is fully restored depends on the uncertainties about the implementation of this program. I don't think we are out of the woods just yet."
A massive relief rally in financial markets on news of the deal to resolve Europe's debt crisis fizzled on Tuesday on nagging doubts about how Greece and other debt-laden euro zone countries will reduce their budget deficits.
On Monday oil prices rose as much as $3.40, before settling up $1.69 at $76.80. Graber said intra-day volatility will probably continue in coming days as the full implications of the package are gauged.
VOLATILITY
Spot gold, often seen as a safe-haven, remained near record highs, highlighting the doubts many investors have over the rescue plan.
China's inflation edged up to an 18-month high in April and bank lending topped expectations, further pressuring oil prices on concerns that potential monetary tightening measures could result in lower demand for fuel in the world's second-largest energy user.
Attention in the oil market is set to turn to weekly U.S. inventory statistics to be published over the next two days.
U.S. crude inventories likely rose by 1.6 million barrels last week on higher imports and slightly lower refinery utilization, a preliminary Reuters poll of analysts showed on Monday.
Supplies of distillates including heating oil and diesel probably added 1.2 million barrels, while gasoline stocks rose 700,000 barrels, the poll showed.
The industry group American Petroleum Institute will release its inventory report for the week to May 7 on Tuesday at 2030 GMT and the U.S. Energy Information Administration's report is scheduled for 1430 GMT, on Wednesday.
OPEC Secretary-General Abdullah al-Badri said he expected the euro zone rescue package to boost oil prices back above $80 a barrel, but warned of wild price swings as the global economy continued on its path to recovery.