Oil prices fell below $123 a barrel this evening to their lowest levels in nearly three weeks. The drop was because of increases in US fuel reserves and a fuel price rise in Asian countries, which is expected to curb demand.
The losses added to a more than $3 slide on Tuesday when the US Federal Reserve warned that the weakness of the dollar threatened to stoke inflation.
Prices rose briefly after US government figures showed a decline in crude oil stockpiles. But they soon fell again, responding to increases in stocks of petrol and distillates such as heating oil and diesel.
US crude was trading $1.78 lower at $122.54 a barrel, while London's Brent crude was $2.13 lower at $122.45.
Data from the US Energy Information Administration showed that crude inventories fell by 4.8 million barrels last week. But petrol and distillates supplies showed larger than expected increases because refineries operated at the highest rate since early January.
Dollar weakness, which makes dollar-denominated commodities relatively cheap, had been a major factor in oil's rise to a record above $135 a barrel in May. The high prices have begun to erode demand and have made the cost of subsidies paid out by governments in emerging economies very hard to bear.
India and Malaysia have decided to raise their domestic fuel prices. India increased petrol and diesel prices by about 10%, the biggest increase in years. Other Asian countries have already cut or are considering reducing subsidies, with potentially major implications for demand.
