Oil dropped further today after a sharp fall the previous session on expectations that a faltering economy in top energy consumer the United States would hit demand growth.
Prices had plunged more than $6 in the previous session, the steepest drop in dollar terms in 17 years.
US crude was $1.42 down up at $137.32 a barrel by 11.49am.
Yesterday the market saw its biggest one-day fall since 1991, when prices tumbled after the US began bombing Iraq in the first Gulf War.
London Brent crude was $1.56 cents down at $137.19 a barrel.
"I think what happened yesterday, especially with the dollar weakening, suggests that the market is taking a little more focus on the real fundamentals," said Mark Pervan, head of commodity research at ANZ.
US Federal Reserve Chairman Ben Bernanke said the weak housing market and high energy and food prices were putting additional stress on a US economy already under considerable strain from the credit crisis fallout.
Prices had tumbled even though the US dollar fell to a record low against the euro yesterday before recovering some ground.
Investors have pumped cash into oil and other commodities this year looking to hedge against inflation and the weak dollar, which has helped drive crude oil up about 50 percent this year to a record above $147 a barrel earlier in July.
The world's top oil exporter Saudi Arabia wants to see lower oil prices, Saudi King Abdullah said in an interview with an Italian newspaper.
"When the price of oil hovered around $100 a barrrel, we were already unhappy. Imagine what we feel now, when there is talk of $200," he said.
Reuters