Oil prices dropped to a fresh seven-week low on Friday, extending a decline that has knocked more than $23 off crude in two weeks as high fuel prices continue to batter demand.

US crude traded down $1.55 to $123.94 by 23:30 pm IST after falling to $122.50 earlier, the lowest since June 5. London Brent crude lost $1.47 to trade at $124.97 a barrel.

Fuel consumption in the US and other industrialised nations has begun to slide, dragging oil down from record peaks over $147 a barrel on July 11.

Additional pressure came as the US dollar extended gains against the yen and the euro, following reports showing an unexpected rise in US durable goods orders and stronger-than-expected US home sales in June and consumer sentiment for July.

Investors flocked into commodities earlier this year as a hedge against inflation and the weak dollar, but analysts say they have begun to unwind those positions over the past two weeks.

Industry consultant Petrologistics said estimated a 200,000 barrel per day rising in Opec production for July. Rising demand in emerging economies like China launched oil on a six-year rally that sent prices up sevenfold at their peak.

The sharp drop has some analysts forecasting oil prices may have peaked, with Lehman Brothers predicting $90 a barrel by the end of the first quarter of 2009.