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 Gasoline prices also fell, but remained volatile ahead of Wednesday report of U.S. oil, gas, diesel and heating oil stocks.
Oil prices had climbed Monday as traders bet that future U.S. Federal Reserve rate cuts will weaken the greenback. A weak dollar attracts investors to hard commodities such as oil, which are seen as a hedge against inflation. Also, a falling dollar makes oil cheaper to overseas investors.
"What we're seeing at the moment is still a very high interest in commodities, driven by non-fundamental issues such as a hedge against the falling U.S. dollar," said Mark Pervan, senior commodity strategist with the ANZ Bank in Melbourne.
Light, sweet crude for May delivery slipped by 44 cents to $108.65 a barrel by noon in European electronic trading on the New York Mercantile Exchange. The contract rose $2.86 overnight to settle at $109.09 a barrel on the Nymex, the highest settlement for a front-month contract since March 18.
Still they remain within striking range of last month's trading record of $111.80 a barrel after a swoon that twice brought them briefly below $100. The rise is helped by a growing belief that gasoline supplies are falling as the summer driving season in the U.S. approaches.
Last week, the Energy Information Administration said gasoline inventories fell more than expected during the week ended March 28. Also, gasoline demand rose for the first time since January, last week's EIA report showed, raising the prospect that supplies will fall further as Americans drive more during the spring and summer.
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 "We're now moving into the gasoline market, so falling gasoline stocks will certainly be supportive of oil prices," Pervan said.
Analysts say refiners have cut back on gasoline production due to low profit margins. The rising price of crude means it costs refiners more to turn the raw product into motor fuel.
Vienna's JBC Energy, in its daily newsletter said expectations were that newest snapshot of U.S. energy stocks to be released on Wednesday would show a further drawdown in gasoline supplies, with "crude stocks swelling by 2.2 million barrels."
The prospect that the Organization of Petroleum Exporting Countries will hold production steady this year also pushed oil prices higher Monday.
In other Nymex trading Tuesday, May heating oil futures were essentially steady at $3.0872 a gallon (3.8 liters), while May gasoline prices lost more than 2 pennies to fetch $2.7595 a gallon.
Natural gas futures dropped 2.6 cents to $9.765 per 1,000 cubic feet.
In London, May Brent crude fell by 54 cents to $106.60 a barrel on the ICE Futures Exchange after rising $2.24 overnight to settle at $107.14 a barrel.
[Associated Press; By GEORGE JAHN]
Associated Press writer Gillian Wong contributed to this report from Singapore.
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