Oil prices slipped further Wednesday after tumbling more than $3 a barrel in the previous day's session as a hurricane looked likely to spare key oil installations in the US Gulf of Mexico. Prices dropped more than $2 to $126 a barrel on Wednesday, falling for a second straight session, as concern eased that Hurricane Dolly would hit Gulf of Mexico crude supply. The slowing US economy and lackluster energy demand in the world's top consumer also weighed on the market, analysts said. Attention later on Wednesday will focus on the latest weekly US inventory report. “Dolly has not deviated much from its forecasted path,” said Olivier Jakob, oil analyst at Petromatrix. “Its price impact potential should now be discounted.” By 1136 GMT, US crude for September was down $2.11 at $126.31. The August contract expired on Tuesday after falling as far as $125.63, the lowest since June 5. Brent crude was $2.11 lower at $127.44. Oil's further drop coincided with a firmer dollar, which may have reduced the appeal of commodities to some investors, analysts said. The dollar hit a one-month high against the yen on Wednesday. Analysts who chart past price movements to predict future direction said the market could head lower for now, given that the next area of support is around $120 to $122 a barrel for US crude. “In addition to Dolly's likely fade into oblivion, we suspect that crude's technicals are not helping matters much either,” analysts at MF Global said in a report. Even after its pullback from the July 11 record high of $147.27, oil has rallied almost 30 percent in 2008 and is up from $20 in early 2002, driven by demand from fast-growing economies like China. Feeding bearish sentiment were expectations that US oil supply data to be released later in the day would show a rise in gasoline stocks amid weakening demand in the world's largest energy consumer. Light, sweet crude for September delivery fell $1.80 to $126.62 a barrel in electronic trading on the New York Mercantile Exchange by noon in Europe. The contract fell $3.40 to settle at $128.42 in the previous session. The August contract fell $3.09 to settle at $127.95 a barrel as it expired at the end of floor trade. The overnight sell-off dragged oil prices to their lowest level since early June and was crude's fifth decline in the last six sessions.
