New York's main contract, West Texas Intermediate (WTI) crude for delivery in February was down 44 cents to $101.37.

Brent North Sea crude for February delivery shed 41 cents to $112.33.

"Oil prices have fallen due to profit-taking prompted by a boost in US oil inventories," said Victor Shum, senior principal at Purvin and Gertz international energy consultants in Singapore.

The US Department of Energy said Thursday that US reserves jumped 2.2 million barrels in the week ending December 30, indicating weaker demand in the world's biggest oil-consuming nation.

"Concerns about the European debt crisis have also cropped back up, affecting the market," Shum added.

Greek Prime Minister Lucas Papademos on Wednesday said the country faced an "uncontrollable default" in March unless unions and employers can quickly agree to labour cost cuts.

Greece is the epicentre of a swirling debt crisis in Europe, a key engine for the global economy.

Analysts said oil prices also remain supported by tensions in the Middle East between Western powers and major oil producer Iran over Tehran's alleged efforts to build a nuclear bomb.

The European Union is moving closer to imposing an Iran oil embargo and Tehran has warned the United States to remove its naval forces from the Gulf, threatening to disrupt shipping through the strategic Strait of Hormuz.

"Fresh fears of a military confrontation that would endanger the flow of crude through the Strait of Hormuz have rattled oil markets since the start of the year," Barclays Capital said in a market commentary.

"As Iran ratchets up its anti-Western rhetoric and military exercises, the West continues to tighten its stringent sanctions against the country."