Light, sweet crude for August delivery settled US21c, or 0.2 per cent, lower at $US140 a barrel on the New York Mercantile Exchange. August Brent crude on the ICE futures exchange settled US48c lower at $US139.83 a barrel.

Futures set a new intraday high of $US143.67 a barrel overnight, but failed to approach that level again. The rally had the wind knocked out of it by a report from the US Energy Information Administration showing April oil demand at its lowest level since 2002.

Consumption has been down for most of 2008 from a year earlier, but demand figures tend to grow in importance to the market with the approach of the July 4 weekend, usually the annual peak for US gasoline use.

"(The report) got people shaken out of the market," said Phil Flynn, an analyst with Alaron Trading in Chicago.

Even with US demand falling, Mr Flynn and other market watchers see little stopping oil prices from topping $US150 a barrel in the next few weeks.

The weak US dollar is key to oil's continued rise. The European Central Bank is widely expected to raise interest rates when it meets on Thursday, while the US Federal Reserve is thought not to be planning any hikes in the near future. This is seen in the oil market as causing the US dollar to gradually weaken against the euro, which in turn would send investors into commodities markets as a hedge. The euro recently traded at $US1.5755.

"As long as (the Fed) is not raising rates, the path is paved for crude ... to keep going higher and the US dollar to keep experiencing weakness," said Matt Zeman, head of trading at LaSalle Futures Group in Chicago.

The market is also tracking several potential supply threats, including an attack on a Nigerian oil facility over the weekend that may have forced some production to shut down. The head of Iran's Revolutionary Guards said on Saturday that the country would take control of shipping in the Straits of Hormuz if attacked, an act that could potentially prevent a significant portion of Middle Eastern oil from reaching market.

"Things are heating up with Iran, (trading) might be busy," said Dean Hazelcorn, a trader with Coquest in Dallas.