U.S. crude for November slid 78 cents to $81.43 a barrel by 0632 GMT (2:32 a.m. EDT), down $3 from last week's five-month high of $84.43. ICE Brent fell 75 cents to $82.97.
The dollar rose by 0.3 percent against a basket of currencies in early trade on Tuesday, after scrambling off recent steep lows against the euro and the yen on Monday.
"What has caused the dollar to rebound is that the market has already priced in QE2 (a second round of quantitative easing). A stronger dollar will weaken oil prices, especially when equity markets are rather quiet."
Expectations that the U.S. Federal reserve would conduct a second round of expansionary monetary policy pushed prices higher last week. Traders will be scanning the minutes of the FOMC meeting on September 21 due later in the day for clues on further quantitative easing, or QE.
The market's direction "very much depends on tonight's FOMC meeting minutes and whether there will be any signs or clues on potential QE2 and when it will happen," said Serene Lim, a Singapore-based oil analyst at ANZ.
Saudi Arabian Oil Minister Ali al-Naimi said he was happy with the oil market as he arrived in Vienna on Monday for the first meeting of the Organization of the Petroleum Exporting Countries (OPEC) in seven months, to take place this Thursday.
Naimi also said prices of between $70 and $80 were "ideal," indicating the producer group's most powerful member has no plans to pursue higher prices.
"The market is very well balanced, everyone is happy with the market," Naimi said. "I am comfortable with economic growth."
OPEC has not officially changed its production ceiling since December 2008. Levels of compliance with implied targets, however, have slipped to 57 percent, according to a Reuters survey, leaving plenty of scope to adjust output informally as the market dictates.
The OPEC basket price, an average of the group's most representative crude grades, has so far been $75.38 this year, up from a mean of $61.06 for all of 2009.
"OPEC members are very likely to maintain production quotas, and they have mentioned a price of $70 to $80 is comfortable," Lim said.
U.S. crude oil stockpiles probably rose for a second straight week last week, adding 1.3 million barrels in the week to October 8 due to higher imports, a preliminary Reuters poll ahead of weekly inventory data showed on Monday.
Distillate stocks, which include heating oil and diesel, were projected down 1.6 million barrels for a third consecutive weekly decline, while gasoline inventories were also forecast down for a third week, at a fall of 1.4 million barrels.
Industry group the American Petroleum Institute will issue its weekly inventory report on Wednesday at 2030 GMT, a day later than usual because of Monday's Columbus Day holiday. Government statistics from the U.S. Energy Information Administration will follow on Thursday at 1500 GMT, also a day later than usual.
