Brent crude futures dropped $1.42, or 1.6%, to $89.75 a barrel by 0430 GMT.

U.S. West Texas Intermediate crude was at $85.59 a barrel, down $1.32, or 1.5%, Reuters reported.

"It appears the catalyst is Israel saying it has withdrawn all troops except one brigade from the southern Gaza Strip, likely in response to growing international pressure and to deescalate tensions," IG market analyst Tony Sycamore said.

Israel and Hamas sent teams to Egypt for fresh talks on a potential ceasefire ahead of the Eid holidays, easing tensions in the Middle East that drove up oil prices by more than 4% last week on concerns of supply disruption.