Oil held above $122 a barrel today, steadying after two sessions of losses that were prompted by growing concern about a slowdown in global demand.
Waning prospects for demand could still put pressure on prices, analysts said, as a growing number of Asian nations struggle to sustain the cost of shielding consumers from record oil prices.
"You have a large layer of global oil demand which is undertaking cuts in subsidies. Right now, that is what's driving the fundamental worries," said Olivier Jakob, analyst at Petromatrix.
US crude was off four cents to $122.26 a barrel by 12.25pm, having settled down $2.01 yesterday at $122.30, its lowest settlement in almost a month. London Brent fell seven cents to $122.03.
Oil ticked up briefly on an explosion at a petrochemical plant in Kuwait, only to change direction after a Kuwait official told Reuters the blast did not affect oil exports or refinery operations.
India raised retail petrol and diesel fuel prices by about 10 per cent and Malaysia hiked petrol prices by 41 per cent. Taiwan, Sri Lanka and Indonesia reviewed their subsidies last month.
Rising fuel prices in Asia and weaker fuel consumption in the United States, the world's top consumer, are expected to lead to further reductions in estimates for global oil demand growth in 2008.
The International Energy Agency, adviser to 27 industrialised countries, issues its latest forecasts next week and has said it may lower its 2008 demand projection further.
Analysts who use past price movements to predict future direction were keeping a watch on whether US crude, which hit a record high of $135.09 last month, can remain above $120 a barrel.
"That's going to be a key support level. If it breaks, the market is going to be much weaker," Mr Jakob said.
The latest weekly data on oil inventories in the United States added to bearish sentiment as larger-than-expected rises in products stocks and falling gasoline demand, trumped a big drop in crude.