Brent crude dropped below $112 a barrel on Friday, tracking losses in the euro amid a political deadlock in Greece that has renewed worries about the fate of the debt-laden euro zone and clouded the outlook for global oil demand.
Greek political parties are making a last-minute attempt to form a government and avoid new elections after voters rejected an international bailout and plunged the debt-ridden country into crisis.
"Markets are seeing some more of that risk-off sentiment given concerns over Greece and the difficulties in forming a coalition government," said Natalie Robertson, analyst at Australia and New Zealand Bank.
Investors shrugged off data that showed inflation in No. 2 oil consumer China continued to moderate in April and potentially gave Beijing more scope to loosen policy to support a slowing economy.
Brent crude for June delivery was down 84 cents at $111.89 a barrel by 8am UAE time, sliding to a session low of $111.76.
The crude benchmark is looking at a second weekly loss, following last week's more than 5 percent slide, after dropping to three-month lows on Monday.
US June oil was harder hit, slipping as low as $95.78 a barrel and trading $1.04 lower at $96.04. It resumed its downturn after ending a six-day slide on Thursday. US crude is also on track for a second straight week of decline after touching its lowest level since mid December on Wednesday.
Oil prices came under pressure from a weaker euro. The common currency fell as investors fretted about the risk of Greece exiting the euro zone, while the dollar edged up versus a basket of currencies.
A stronger dollar makes commodities priced in the greenback expensive for holders of other currencies. Asian shares slid on Friday, spawning declines in other risk assets.
Investors are now keenly waiting for China's industrial production report scheduled for release later in the day, after Thursday's weak trade data cast doubts on whether the slowdown in the world's second largest economy has hit bottom.
"Some investors are probably waiting for more negative data to confirm their bearish expectations about demand in China," Robertson said.
A better global supply scenario is also weighing on oil prices. Brent hit highs above $128 in March amid fears about supply disruptions from key producer Iran following Western sanctions, but prices have shed more than 12 percent since then.
"We haven't been seeing an escalation with regards to tensions in Iran so the premium that was built into the price might just be starting to come off," said Ben Le Brun, market analyst at OptionsXpress in Sydney.
The Organization of the Petroleum Exporting Countries pumped 1.62 million barrels per day above its supply target in April, filling gaps caused by a large number of supply outages globally.
But analysts say OPEC could trim output in response to swelling stockpiles.
"The unusually large global inventory builds in the first half of 2012 will lead to a prolonged slump in the need for OPEC oil, requiring substantial cuts in OPEC's output," Leo Drollas, chief economist for Centre for Global Energy Studies told an industry conference in Singapore.
"These will come about, but not quickly enough to prevent the price of oil from sagging."