Oil dipped below $112 a barrel today before recovering slightly, dragged down by a weak economic outlook for the United States and Europe.
US crude fell 82 cents to $112.05 a barrel by 0429 GMT, while London Brent crude dropped 84 cents to $111.10.
The US mortgage crisis, consumers' anxiety over a worsening job market and a weak economic outlook in Europe continued to keep a lid on crude prices, which have slid around 24 per cent since their peak of more than $147 a barrel in mid-July.
Home builder sentiment in the US was at a record low in August, depressed by ever-tightening lending conditions and a flood of foreclosed homes, data from the National Association of Home Builders showed.
"The lack of economic growth in the West will impact demand," said an oil analyst who decline to be named. "Without economic growth, people are coming back to fundamentals."
Prices also fell as concerns over a possible supply disruption in the Gulf of Mexico eased, after a tropical storm swept through the region without causing major damage.
Tropical Storm Fay swept over the Florida Keys with heavy rain and 97 kph winds and churned towards the Florida mainland yesterday after killing more than 50 people in the Caribbean.
However, the sixth storm of the 2008 Atlantic season did not reach hurricane strength before rolling across the vulnerable, low-lying Florida island chain, where authorities reported minor flooding.
But even as Fay passed, energy markets started eyeing another low-pressure system about 1,167km west-southwest of the Cape Verde islands.
"The hurricane season is still a major issue as seen in 2005 with Katrina. We have to be mindful of that," said Peter McGuire, managing director of Commodity Warrants Australia.
Security risks still featured with Russian troops and tanks remaining deployed in several areas of Georgia on Tuesday, in apparent defiance of Western pressure to withdraw quickly.
BP said exports of Azeri oil by rail to Georgia had stopped because of damage to a railway line in Georgia.
Russia's defence ministry has said the army's withdrawal from Georgia had started, but yesterday a Reuters correspondent who travelled to the central town of Gori saw little evidence of a pullout from the area.
The dollar was little changed today from late US trade at 110.06 yen holding off a seven-month peak of 110.67 yen struck last week.
Reuters