Light, sweet crude for July delivery fell 60 cents to settle at $134.01 a barrel on the New York Mercantile Exchange.
Prices traded within a narrow range compared with recent sessions. With no major news to drive the markets higher or lower, traders eased up ahead of weekly U.S. inventory figures due out Wednesday.
In the United States, retail fuel prices remained near record highs.
The national average for a gallon of regular gasoline hovered at $4.078, down just two-tenths of a penny from the previous day's all-time high, according to AAA and the Oil Price Information Service. Diesel dipped by a similar amount to $4.795 a gallon.
Those near-record prices are taking a toll on the nation's economy. The Labor Department said wholesale inflation bolted up 1.4 percent last month - its biggest increase in sixth months - because of higher energy and food costs.
Higher wholesale prices could lead to increased costs for U.S. shoppers, prompting them to cut back even further on fuel.
The U.S. is by far the world's biggest oil consumer, although demand in booming Asian markets and other parts of the world is accelerating rapidly. That growth ensures worldwide supplies remain tight even as U.S. drivers ease up.
A weekly report from MasterCard found U.S. gas consumption last week dropped 3.2 percent from the previous year. The credit card company's SpendingPulse survey also showed gasoline demand is off 4.3 percent over the past four weeks.
Analysts expect the Energy Information Administration inventory figures out Wednesday morning will show U.S. oil stockpiles fell by about 2 million barrels, while gasoline inventories rose by nearly a million barrels last week, according to a survey by Platts, the energy research arm of McGraw-Hill Cos.
Tuesday's pullback in oil prices followed violent swings Monday, when prices surged to a record $139.89 per barrel and tumbled as low as $132.84 before closing lower.
As recently as a year ago, gains or losses of $2 or $3 in a single day would have been significant. But nowadays, price swings of $5 a barrel are no longer unusual, said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.
"The issue really is global oil demand is growing at a reasonable pace and supply is still playing a catch up game," Shum said. He said further price spikes are possible as the summer progresses.
Traders are keeping a close eye on Saudi Arabia, the world's largest oil producer. It is planning a meeting of oil producing and consuming nations in Jeddah on Sunday to seek ways to tackle soaring oil prices.
Over the weekend, the kingdom reportedly told U.N. Secretary-General Ban Ki-moon that it would increase oil output by 200,000 barrels a day, or by 2 percent, from June to July. In May, the country raised production by 300,000 barrels a day.
While added Saudi oil would help ease tight worldwide supplies, market observers are unsure whether a further boost will do much to dent crude's surge. Last month's increase was largely ignored by the energy market.
Also, analysts say any added supply, at least in the near term, would likely be in the form of heavier grades of crude that are more difficult and expensive to refine.
"There's still a lot of unanswered questions as to exactly what the amount will be and what quality crude it will be," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.
In Washington, the Commodity Futures Trading Commission said it will place stricter limits on foreign exchanges that trade U.S. oil amid concerns.
The federal regulatory body, which recently said it was examining possible price manipulation in U.S. oil markets, rolled out the proposal ahead of a Senate hearing to examine whether it has the necessary resources and authority to properly oversee commodities markets.
Phil Flynn, an analyst at Alaron Trading Corp. in Chicago, said he doubted the CFTC's move would have a major impact on the market.
In other Nymex trading, July gasoline futures fell 2 cents to settle at $3.4179 a gallon and heating oil futures slipped by about half a penny to settle at $3.8222 a gallon. July natural gas futures rose 1.9 cents to settle at $12.952 per 1,000 cubic feet.
In London, August Brent crude futures lost 99 cents to settle at $133.72 on the ICE Futures exchange.
