Brent crude oil fell below $116 per barrel, slipping from 4-1/2-month highs after three weeks of gains powered by signs of improving global economic growth and concern over geopolitical tension in the Middle East.
Analysts said the market was pausing for breath after a bull-run that has added around 10% to oil prices since the beginning of December on increasing evidence of growth in the United States and China, the world's two biggest oil users.
Stock markets have been buoyant with Asian shares climbing to 18-month highs on Monday, and the euro has also been strong after manufacturing figures suggested the European bloc had passed the worst point in its recession.
Analysts said an offer of talks with the West by Iran over its nuclear programme was also helping depress the market.
Brent crude fell $1.22 to a low of $115.54 per barrel before recovering slightly to around $115.75.
US crude dropped $1.70 to a low of $96.07 per barrel, after rising for eight consecutive weeks, the longest such winning streak since July-August 2004.
The global economic outlook brightened considerably last week after US payrolls rose by 157,000 last month, while the Institute for Supply Management said its index of national factory activity rose to its highest since April.
Other purchasing manager surveys showed that China's factories remained on track for a mild recovery, while the euro zone manufacturing sector, despite a contraction, had its best month in a year, suggesting the worst may be over.
Data on Sunday showed China's increasingly important services sector grew for the fourth straight month in January, although the expansion was modest.
Also underpinning oil prices have been supply concerns stemming from rising tensions in the Middle East, the world's biggest source of crude, but these appear to have eased slightly with an announcement by Iran that it might be willing to talk about its nuclear programme.
Iran, facing stiff sanctions from the United States and Europe over its nuclear programme, said on Sunday it was open to a US offer of direct talks to try to resolve the dispute.
It said six world powers had suggested a new round of nuclear negotiations this month, but did not commit itself to either proposal.