NEW YORK, July 29: Oil fell to its lowest level in nearly three months on Tuesday, extending a steep slide since mid-July on mounting evidence high prices and a souring economy were cutting into world energy demand.The drop coincided with a firmer US dollar, which may have reduced the appeal of commodities to some investors playing the strong negative correlation between the markets in recent months, analysts said.

Opec President Chakib Khelil said on Tuesday oil could fall further to $70 to $80 a barrel in the long term but added he did not think the producer group should consider cutting output at this point. US crude dropped $2.74 at $121.99 a barrel by 1600 GMT after dipping as low as $120.42, its lowest since May 6. Brent crude fell $3.13 at $122.71.

“We still believe that crude’s rallies are vulnerable and we would advise not buying into them,” said Edward Meir, analyst at MF Global.

Oil has fallen from a record peak of $147.27 on July 11, pressured by signs that high prices and an economic slowdown are curbing demand, especially in the United States, the world’s largest oil consumer.

The chief executive of BP Plc Tony Hayward said on Tuesday he saw demand destruction of 5 to 10 per cent for gasoline in developed OECD economies as people drive less due to high fuel prices.

The Energy Information Administration said on Monday US oil demand in May was 660,000 barrels per day less than previously thought. A separate government report said motorists were driving less.

Limiting oil’s drop, Shell declared force majeure on Tuesday on its Nigerian Bonny Light oil exports for July to September following Monday’s attack by militants on an oil pipeline in the Niger Delta.

Tension over Iran’s nuclear program also provided support.—Reuters