Oil fell below $124 a barrel today to its lowest level in nearly three weeks after a fuel price rise in India, which is expected to curb demand.
Today's losses added to a more than $3 slide yesterday when the US Federal Reserve warned the weakness of the US currency threatened to stoke inflation.
US crude fell to as low as $123.15 a barrel, the lowest since mid-May. It was trading 79 cents lower at $123.52 a barrel by 12.23pm. London's Brent crude was trading 98 cents lower at $123.60.
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 raised their domestic fuel prices.
India, where robust demand has come from along with China, has increased petrol and diesel prices by about 10 per cent today, the biggest increase in years.
Other Asian countries have already cut or are considering reducing subsidies, with potentially major implications for demand.
If demand in Indonesia, Taiwan, Thailand, Malaysia and India fell by 5 per cent, that would lower daily crude use by more than 310,000 barrels, the equivalent of two North Sea oil fields' output, said Addison Armstrong of Tradition Energy.