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Oil falls under $112 on bearish global demand

LONDON - Oil dropped below $112 a barrel on Friday, down more than $2.50, to its lowest level since early May, pressured by faltering global demand, rising supply and a stronger dollar.

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Crude has fallen sharply since reaching an all-time high of $147.27 a barrel on July 11 partly on concern about weakening demand. It fell as low as $111.85, the lowest since May 2, on Friday.

U.S. crude for September delivery was last trading down $2.77 at $112.24 a barrel by 1420 GMT. The contract will expire on Aug. 20. London Brent's new nearby contract, October, lost $2.52 to $111.16 a barrel.

"It looks like we might be trying to find a short term price floor. We've tested $114 and $113, we might well hover here for a little while before we make another move," Simon Wardell, oil analyst at Global Insight said. "We might get to $110, how quickly we get there would depend on the demand outlook ... if next week's U.S. inventory data shows an increase in stocks, we could go lower," he added.

Supply has been rising as demand ebbs. Output from the Organization of the Petroleum Exporting Countries rose 145,000 barrels per day in July to 32.8 million bpd, the International Energy Agency said this week.

Oil also fell as the dollar strengthened following further proof that the U.S. economic slowdown is spreading. The economy of 15-nation euro zone contracted 0.2 percent in the second quarter, data showed on Thursday.

The euro hit a six-month low against the dollar on Friday. Weakness in the U.S. currency earlier this year had boosted the appeal of oil and commodities to investors as a hedge against inflation.

Fighting between Russia and Georgia, a key supply route from the Caspian to Europe, has lent support to oil. But analysts said diplomatic efforts to secure a peace accord reduced the risk of supply disruption.

U.S. President George W. Bush accused Russia on Friday of "bullying" Georgia and key European ally Germany criticised Moscow for going too far with its invasion of its small Caucasus neighbour.