Oil prices dropped $4 on Thursday as concerns about global energy demand and strength in the dollar countered a government report showing the biggest decline in US stockpiles since 2004. US crude settled down $4.41 at $126.62 a barrel, while London Brent gave up $4.04 to $126.89 a barrel.
The decline extends oil's retreat from last week's record above $135 a barrel amid growing signs that global energy demand growth is slowing under the strain of high costs and economic turmoil in the United States.
Gains in the US dollar after a report that the US economy grew in the first quarter at a faster pace than previously estimated added pressure to commodity markets by diminishing the purchasing power of buyers using other currencies.
Oil had briefly surged into positive territory Thursday morning after the US Energy Information Administration released a report showing an 8.8 million-barrel drop in US crude stockpiles, the biggest fall since a hurricane shut offshore oil platforms in September 2004.
The unexpected decline "was due to temporary delays in crude oil tanker off-loadings on the Gulf Coast," EIA said. Louisiana Offshore Oil Port (LOOP), the nation's only US deep-water port, said Thursday some crude oil tankers cancelled scheduled deliveries last week.
"Once again, on further review, we should not read too much into one week's report from the EIA," said Phil Flynn, analyst at Alaron Trading in Chicago.
Analysts in a Reuters poll had forecast the stock level to be unchanged.
Stockpiles at Cushing, Oklahoma, the delivery point of US crude traded on the New York Mercantile Exchange (NYMEX), increased 700,000 barrels, according to the EIA, also tempering the bullishness of the report.
The EIA said on Wednesday US oil demand in March fell to the lowest level for that month in five years, the latest sign that consumers are cracking under the strain of high oil prices.
In Britain, gasoline demand in April fell 7 percent from a year ago while diesel demand fell nearly 2 percent, government data showed on Wednesday.
Asian countries have also been reviewing fuel subsidies, which have sheltered drivers from the shock of steep price rises, intensifying fears of an Asian energy demand slowdown.
India's oil minister, Murli Deora, said on Thursday that the government will take a decision on raising fuel prices in the next two to three days.
Taiwan, Indonesia and Sri Lanka have already raised domestic fuel prices.
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