Oil dropped by more than a dollar to below $127 a barrel today, as traders weighed the threat to sustained demand from changes in fuel subsidies in Asia.
US light crude for July delivery fell $1.21 a barrel to $126.55 by 12.15pm.
Prices fell initially yesterday too, but ended the day higher in a refined products-led recovery from session lows.
London Brent crude fell $1.25 to $126.77 a barrel.
Analysts said there were growing concerns about oil demand holding up, given the mounting pressure on high-growth Asian economies to slash subsidies.
"The demand side of the equation is being priced in," said Olivier Jakob at Petromatrix.
Indonesia, Sri Lanka and Taiwan have already announced cuts to subsidies, while Malaysia said it would scrap fuel price controls in August in a move that could double pump prices. India is also expected to raise fuel prices tomorrow.
"The high oil price will clearly be more keenly felt by the end-consumer without these subsidies," said Tom Nelson, an analyst for the Guinness Global Energy Fund, which takes long-only positions in oil and gas firms.
"It's difficult to ascertain the demand destruction this could lead to," he said.
The head of the International Energy Agency (IEA) told Reuters yesterday that world oil demand was shrinking more quickly than first thought and the IEA may cut its demand growth forecasts further.
Most of that decline in demand has so far been in developed economies as sharp price rises bite for consumers and industry.
"Demand figures are falling fast in Europe. We're seeing things cooling down," one broker said. "There are some big numbers being taken out of the market."