LONDON: Oil prices fell on Wednesday as the dollar firmed and caution set into the market ahead of a US crude inventory report that would offer clues about demand.
Brent North Sea crude for delivery in September shed 47 cents to stand at $109.35 a barrel in London afternoon deals.
New York's main contract, West Texas Intermediate for September, dropped 55 cents at $106.28 a barrel.
"Crude oil prices snapped a three-day rally, retreating on Wednesday amid concerns about increasing US oil inventories, while renewed worries that the US Federal Reserve could start tapering its stimulus programme in September also weighed on market sentiment," said Myrto Sokou, senior research analyst at Sucden brokers.
Oil prices took a knock also from the dollar rising against the euro, which makes the dollar-priced commodity more expensive for holders of rival currencies and so denting demand.
Markets meanwhile kept a close watch also over Egypt, scene on Wednesday of bloody unrest.
Security forces moved in on two huge Cairo protest camps set up by supporters of Egypt's ousted president Mohamed Morsi, launching a crackdown that quickly turned into a bloodbath with 124 dead, counted by an AFP journalist.
Analysts fear that the violence could affect the transport of crude from Egypt's oil-rich Middle East neighbours.
Later on Wednesday, the US Energy Information Administration (EIA) publishes weekly inventory data, which is an indicator of the strength of demand in the world's biggest crude consumer.
Analysts surveyed by Dow Jones Newswires expected the data to show that US stockpiles fell by 1.5 million barrels in the week ended August 9, suggesting firmer demand.
Markets are tracking also developments in crude producer Libya, after fresh oil supply disruptions there this week.
Libyan oil exports plunged by more than 70 percent at the end of July after protesters, including policemen and border guards, forced terminals to shut over demands for back pay.
Production and exports appeared to be resuming days later, but the strikes returned this week.
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