Oil prices drop further

New York's main oil contract, light sweet crude for August delivery, dipped 42 cents to $134.18 a barrel, after slipping $4.14 yesterday.     

That followed a dive of $6.44 on Tuesday, the sharpest daily decline since January 1991.     

London's Brent North Sea oil for September dipped 21 cents to $135.60. The Brent August contract expired yesterday down $2.56 at $136.19.     

Prices have crumbled since striking record highs above $147 per barrel last Friday.     
Losses accelerated yesterday after a bigger-than-expected rise in US crude reserves, analysts said.     

"Oil prices fell sharply again yesterday largely driven by an unexpected weekly rise in US oil and gasoline inventories," said Barclays Capital analyst David Woo.     

The US government's Energy Information Administration said crude inventories rose by 3.0 million barrels in the week ending Jul 11. That confounded market expectations or a decline of 2.2 million barrels.     

"The inventory report essentially indicated oil demand in the US is just very poor," said Victor Shum, a Singapore-based analyst with energy consultancy Purvin and Gertz.  
   
Traders were also watching developments in the Middle East after what appeared to be a sudden shift in US diplomatic policy toward Iran announced late Tuesday, which likely would impact the oil market, analysts said.