Brent crude fell below $106 a barrel on Wednesday as investors awaited signals from the U.S. Federal Reserve on its plan to roll back its stimulus programme after data pointed to accelerated economic growth in the world's top oil consumer.
But prices still were set to post their biggest monthly rise in six months, helped by gains earlier in July as political tensions in the Middle East kept alive concerns about global oil supplies.
Brent slipped 91 cents to $106.00 a barrel by 1437 GMT but was on track for a monthly rise of 4 percent.
U.S. crude rose 20 cents to $103.28 and was headed for a near 7 percent monthly gain, the biggest in 11 months.
The Fed will release a statement at 1800 GMT following a two-day policy meeting, which could provide more clues on plans to roll back its monetary stimulus, which has broadly supported commodities prices by offering high liquidity to the markets.
Ahead of that, data showed U.S. economic growth unexpectedly accelerated in the second quarter and private sector hiring was higher than forecast in July, which could lead the Fed a step closer to cutting back stimulus.
"Will (the Fed) try to clarify in even more detail timing on tapering and the length of the period over which low interest rates can be expected, or will they leave it alone and not box themselves in any further? The latter approach would seem to be most sensible, but it may disappoint markets that seem to need constant re-assurance that the drugs will not be withdrawn," PVM Managing Director David Hufton said.
U.S. futures found support after the U.S. Energy Information Administration reported crude stockpiles at the Cushing, Oklahoma delivery point fell for a fifth straight week to the lowest level since April 2012.
"The great surplus of crude in the Midwest is draining away, so that should lead to a normal price relation with other crude oils in the Gulf Coast," according to Christopher Bellew, am analyst at Jefferies Bache.
Gains were capped, however, as overall U.S. crude oil stocks rose 431,000 barrels to 364.62 million against forecasts of a 2.3 million barrel draw, and gasoline stocks also rose after forecasts of a draw.
Hopes that Europe is pulling out of recession were boosted after unemployment in the euro zone fell for the first time in more than two years in June.
Investors were also awaiting manufacturing data later this week from China, which could highlight weakness in the world's No. 2 oil consumer.
Pumping of crude oil resumed through the Kirkuk-Ceyhan pipeline last night after repairs were completed following a bomb attack over the weekend.
Oil outages in Iraq, South Sudan, Libya and Iran have combined to help keep oil prices well above $100 a barrel, partly countering the rise in U.S. shale oil supply and worries about Chinese demand.