The U.S. Energy Information Administration revised down U.S. April oil demand by 863,000 barrels per day (bpd) to 19.77 million bpd — 3.9 percent below year-ago levels — as surging fuel costs erode demand in the world's top consumer.
The revision showed April demand was the lowest for the month since April 2002, and came even before prices scaled to new highs in June.
"This revision of the U.S. oil demand for April has certainly put pressure on crude futures. This is demand destruction before our very eyes," said Phil Flynn of Alaron Trading. "This is a huge revision and it happened when (fuel) prices were still lower, so you can expect that there could be more future downgrades in demand data."
Crude had earlier hit a fresh high on the weaker dollar and escalating tensions between Iran and Israel over Tehran's nuclear program.
Iran's Revolutionary Guards said Saturday the OPEC member would impose controls on shipping in the Persian Gulf and Strait of Hormuz if it were attacked. Roughly 40 percent of the world's traded oil flows thought the narrow waterway separating Iran from the Arabian Peninsula.
The U.S. Navy's Fifth Fleet said on Monday the United States and its allies will not allow Iran to hamper shipping in the Gulf. Iran's foreign minister said Sunday he did not believe Israel was in a position to attack.
Tehran's dispute with the West over its nuclear development program has supported oil's steep rise this year, as has an influx of cash from investors seeking to hedge against inflation and the slumping U.S. greenback.
Oil prices have jumped nearly seven-fold since 2002 as part of a broader commodities rally sparked by surging demand from emerging economies like China and India.
"Demand from the investment side has been boosted by problems in the financial sector as well as a desire for diversification," said Frances Hudson, investment director, strategy and asset manager Standard Life Investments. "Also, inflation concerns encourage investment in real assets such as oil and gold."
Inflation in the euro zone rose to a record high of 4 percent in June, data showed.
Oil has risen more than 40 percent this year, extending a six-year rally, in response to the Middle East tensions, plus expectations that supply will struggle to keep pace with rising demand from emerging economies such as China and India.
Saudi Oil Minister Ali al-Naimi reiterated his country's position that oil prices were being mostly driven by speculation and said the OPEC kingpin was prepared to supply all the oil its customers needed.
The heads of some of the biggest oil companies, gathered at an oil conference in Madrid, said fundamentals, not investor flows, were the main driver of prices.
"This is a fundamental signal, this is not about speculation," said Tony Hayward, chief executive of BP.