Traders also were concerned about ongoing financial problems in some European countries. Benchmark oil for January delivery lost 49 cents to settle at $81.25 a barrel on the New York Mercantile Exchange.
At the pump many motorists found gas prices at their highest level in three years, as they filled their tanks ahead of the long Thanksgiving weekend.
The national average for a gallon of regular was $2.87 on Tuesday, according to AAA, Wright Express and Oil Price Information Service. That's down about 2 cents from a week ago but nearly a quarter more than motorists paid a year ago.
Oil prices have lost ground as traders opted to sell their holdings to protect assets in the event energy demand falls amid global uncertainty.
A key issue has been China's ongoing efforts to control inflation. China has been an aggressive importer of oil and other products to meet the needs of a robust economy that boosted inflation to a 25-month high in October.
China's now banning hoarding of oil, coal and other key commodities to ensure supplies and contain price increases.
Meanwhile, escalating tensions between North and South Korea also pressured prices. The two sides exchanged artillery fire after the North shelled an island near a disputed sea border, killing at least two South Korean marines, setting dozens of buildings ablaze and sending civilians fleeing for shelter.
"If tensions heat up, it can be a negative for oil demand as uncertainty in the region may slow economic activity," PFGBest analyst Phil Flynn said in a research note.
The two developments added to ongoing concerns that financial problems will deepen in some countries in the 16-nation eurozone after Ireland sought help to resolve its debt crisis.
In other Nymex trading in December contracts, heating oil gave up 1.90 cents to settle at $2.2496 a gallon, gasoline dropped 1.77 cents to settle at $2.1342 a gallon and natural gas fell 0.7 cent to settle at $4.264 per 1,000 cubic feet.
In London, Brent crude lost 71 cents to settle at $83.25 a barrel on the ICE Futures exchange.
Associated Press writers Elaine Kurtenbach in Shanghai, Alex Kennedy in Singapore and Pablo Gorondi in Hungary contributed to this report.