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Oil prices fell below 70 dollars on Wednesday as the market was rattled by soaring US fuel inventories that signalled flagging demand, traders said.
New York's main contract, light sweet crude for November delivery slid 1.14 dollars to 69.74 dollars a barrel.
Brent North Sea crude for November delivery sank 1.25 dollars to 67.31 dollars a barrel in London trade.
The US government's Department of Energy announced Wednesday that American gasoline or petrol reserves surged 2.9 million barrels in the week ending October 2.
That easily beat market expectations of a smaller 600,000-barrel gain, according to analysts polled by Dow Jones Newswires.
Stockpiles of distillates, including diesel and heating fuel, leapt by 700,000 barrels last week. Analysts had pencilled in a gain of 400,000 barrels.
Crude oil reserves meanwhile declined by 1.0 million barrels, compared with forecasts of a 1.7-million-barrel increase.
In earlier trade on Wednesday, oil prices jumped above 71 dollars in New York, extending gains won a day earlier on a report that Gulf states considered dropping the greenback for oil transactions.
Britain's Independent newspaper reported Tuesday that Gulf countries had held secret meetings with officials outside the region to discuss dropping the dollar for oil trade.
The countries would instead use a basket of currencies, including the yen, the paper said, citing Gulf Arab and Chinese banking sources in Hong Kong.
The report increased recent negative sentiment toward the dollar despite a series of denials, the latest by France. The French economy ministry described the report as "pure speculation" on Wednesday.
The Independent had reported that Gulf states, together with China, Russia, Japan and France, were considering replacing the dollar.
Demand for oil has plunged amid the world economic downturn, the most severe since the 1930s. Oil prices tumbled from historic highs of more than 147 dollars in July 2008 to about 32 dollars in December because of global recession.
Prices have since recovered but investors remain concerned over the pace of the upturn.
Kuwaiti Oil Minister Sheikh Ahmad Abdullah al-Sabah on Tuesday predicted that oil prices would remain at 60-80 dollars a barrel, as he also denied The Independent report.
"Over the last two weeks, crude oil rebounded from a nine-week low near 65 dollars to around the 72-dollar level, amid some better than expected (economic) data from the US and Asia," analysts at Sucden Financial Research said on Wednesday.
