Oil prices dropped sharply yesterday as traders reacted negatively to evidence that record retail petrol prices above $4 a gallon were damaging demand in the US.

Nymex August West Texas Intermediate sank $2.45 to settle at $134.55 a barrel, after touching a session low of $131.95, while ICE August Brent lost $2.13 at $134.33 a barrel after the latest US inventories data showed an unexpected rise in crude stocks of 800,000 barrels last week, confounding the consensus forecast for a fall of 1.4m barrels.