Oil prices faced a decline in Tuesday's trading session, influenced by renewed concerns about increasing supply and the impact of a stronger dollar. The focus returned to supply worries as Libya resumed production at the Sharara oilfield, a significant development after protests had disrupted output since the beginning of the month. Analysts from ING reported that the local governments' agreement to meet protestors' demands led to the restart, with crude oil production at the field reaching around 270,000 barrels per day.

In the U.S., North Dakota's pipeline authority estimated a reduction of approximately 250,000 to 300,000 barrels per day in oil production as of Tuesday. Severe cold weather in the U.S. further affected refining operations, with about 15% of refining capacity in the Gulf Coast region reported offline as of the previous Friday, according to ING analysts.

The Middle East's ongoing unrest, including the conflict between Israel and Hamas in Gaza and joint strikes on Houthi positions in Yemen by U.S. and British forces, provided some support to crude markets. The Iran-backed Houthi militants' threats to shipping in the Red Sea, a crucial shipping artery between Europe and Asia, added to geopolitical tensions.

However, the strengthening of the U.S. dollar played a significant role in limiting oil prices. Investors reconsidered expectations of a March rate cut as positive economic data emerged throughout the month. A stronger dollar makes oil, priced in U.S. dollars, more expensive in other currencies, potentially reducing demand. Only around 40% of traders currently anticipate a rate cut in March, down from about 80% earlier in the month, according to Investing.com's Fed Rate Monitor Tool.

Looking ahead, the market is eyeing key economic updates, including fourth-quarter GDP data on Thursday and the PCE price index data (Fed’s preferred inflation gauge) on Friday. The outcome of these reports could influence the odds of a rate cut and impact oil prices accordingly.