Oil dropped more than $US2 to a fresh seven-week low on Friday, extending a decline that has knocked more than $US24 off crude in two weeks as high fuel prices continue to batter demand.
US crude fell $US2.23 to settle at $US123.26, after falling to $US122.50 earlier, its lowest level since 5 June.
Brent crude lost $US1.92 to settle at $124.52 a barrel.
Fuel consumption in the United States and other industrialized nations has begun to slide, dragging oil down from record peaks over $US147 a barrel on 11 July.
Additional pressure came as the US dollar extended gains against the yen and the euro.
Investors flocked into commodities earlier this year as a hedge against inflation and the weak dollar, but analysts say they have begun to unwind those positions over the past two weeks.
Rising demand in emerging economies like China launched oil on a six-year rally that sent prices up sevenfold at their peak. The sharp drop has some analysts forecasting oil prices may have peaked, with Lehman Brothers predicting $US90 a barrel by the end of the first quarter of 2009.
