New York's main contract, West Texas Intermediate (WTI) crude for August, finished at $83.91 a barrel, down $2.08 from Monday's closing level.
In London trade, Brent North Sea crude for delivery in August shed $2.35 to settle at $97.97 a barrel.
"Prices gave back Monday's gains to slide lower as Norway's government intervened in a labour strike and ordered a last-minute settlement to prevent a full closure of its oil industry," said Sucden analyst Myrto Sokou.
"It should be noted that the oil strikes in Norway that started two weeks ago, had already cut oil production by 13 percent from the world's No. 8 producer.
Norwegian oil fields ramped up output on Tuesday after the government intervened to end a 16-day strike over pensions that would have halted production by western Europe's largest crude exporter.
Norway's state-owned giant Statoil, the company most affected by the strike, said it was ramping up to resume production and expected normal output levels by week's end.
The government's move to settle the dispute angered unions, who said their negotiation options had been narrowed.
"We are very disappointed," said Martin Sheen, who represents the Industri Energi union. "We think it was not necessary at all."
The dispute over pensions between unions and employers will now go to binding arbitration.
The lockout would have prevented more than 6,500 people from going to work on the Norwegian continental shelf and cut off production of about two million barrels of oil equivalent a day.
Market sentiment was also dented on Tuesday by fresh fears about the oil demand outlook for China, the world's biggest energy-consuming nation where slowing growth has markets on edge.
"Disappointing Chinese import figures are adding to the burden on prices," added Commerzbank analyst Carsten Fritsch.
"China imported considerably less crude oil in June due to the fact that refineries sharply cut their capacity utilization last month," he said.