SINGAPORE: Brent crude fell below $123 a barrel on Thursday on concern about the impact of high prices on demand, although continued unrest in the Middle East and a sharp fall in US gasoline stocks limited losses.
Brent crude for May fell 34 cents to $122.54 a barrel by 0710 GMT while US May crude fell 8 cents to $107.03 a barrel.
The world's largest economy continued to improve in the last month, but firms were feeling the impact of higher costs of energy and raw materials, the US Federal Reserve said on Wednesday.
Rising US gasoline prices have damaged confidence in the country's future and forced Americans to adjust spending habits and lifestyles, a Reuters/Ipsos poll found.
Economic growth is fuelling the rise in commodity prices, in turn leading to growing concern that high costs for raw materials could stunt growth and with it fuel consumption.
The International Energy Agency and the International Monetary Fund both warned this week expensive crude could erode demand.
But analysts are divided on the impact so far.
"Overall, it is far too premature to signal that the first signs of demand destruction are already noticeable," Barclays Capital's Amrita Sen said in a note.
The rise in oil prices "should eventually help balance global oil demand through the process of demand reaction, in an environment where incremental supply volumes remain constrained, rather than leading to demand destruction," she said.
China, the world's second-largest oil consumer after the United States, will release first quarter GDP and March consumer price data on Friday.
Markets will be watching the data closely for any sign of a slowdown in China's demand, which has driven the growth in global fuel consumption for the last decade.
"People are already forecasting a slowdown in China but the growth is still there," said Michael Lo, a Hong Kong-based analyst at Nomura International.
China annual inflation accelerated to between 5.3 and 5.4 percent in March, Hong Kong's Phoenix TV said, citing an unnamed source. This was slightly higher than 5.2 percent in a Reuters poll of economists.
The data may signal what China's next move will be on monetary tightening. Beijing on Wednesday vowed to use all tools at its disposal to fight inflation, heightening fears of more measures to cool the speed of growth that could crimp fuel demand.
As a prelude to the GDP data on Friday, China reported strong electricity output growth in March as the country heads into peak summer demand.
Libyan rebels are exporting a "minimum amount" of crude from its fields which are pumping around 100,000 barrels per day (bpd), less than a tenth of the country's usual production at 1.6 million bpd.
JPMorgan said supply is unlikely to rise significantly unless a resolution to the conflict is reached.
"Until then we expect exports to remain low and fluctuate widely, as we have seen in the past in conflict areas," analysts led by Lawrence Eagles said in an April 13 note.
US gasoline inventories fell 7 million barrels last week to their lowest level since October, data from the US Energy Information Administration showed.
The weekly fall was the biggest since October 1998 as refineries clear out winter grade gasoline ready for summer blends, and undertake maintenance ahead of the peak holiday driving season.
US crude stocks rose for a sixth straight week by 1.6 million barrels to 359.3 million barrels.
"Total gasoline stocks are approaching the five year average and are below 2010 levels," JPMorgan analysts said.
"The build in crude and draw in products points to continued refinery maintenance in the US, as the spring turnarounds wrap up," they said, adding that unplanned outages also reduced run rates.
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