U.S. retail gasoline demand fell 3.8 percent last week versus year ago levels, MasterCard Advisors reported, even as pump prices began to ease from record highs.
Growing demand from China and other emerging economies inspired a six-year rally that sent oil up sevenfold at its peak, with additional strength this year coming from investors buying oil as a hedge against the weak dollar and inflation. (Watch the accompanying video to see why economists are telling investors to buy oil...)
The gloomy demand picture outweighed concerns about supply disruptions caused by the conflict between Georgia and Russia.
Russian President Dmitry Medvedev ordered a halt to military operations in Georgia on Tuesday but Tbilisi cast doubt on the announcement, saying Moscow was still bombing towns and villages.
BP said Tuesday it shut down the 90,000-barrel-a-day oil pipeline running from its Caspian Sea fields through Georgia but neither pipeline had been damaged by recent fighting, the company said.
A third BP pipeline that runs through Georgia, the 850,000-barrel-per-day Baku-Tblisi-Ceyhan oil pipeline, was shut last week following an explosion in Turkey.
Iran's OPEC governor Muhammad Ali Khatibi said OPEC should trim its oil output if demand continues to fall in slowing industrialised economies.
The producer group next meets in September to decide on output policy.
A Reuters poll of analysts ahead of weekly U.S. inventory data due out on Wednesday forecast crude stocks fell by 200,000 barrel last week, gasoline stocks fell by 2.1 million barrels, and a 1.9 million barrel build in distillates.