Oil near three-month low on weak demand

SINGAPORE (Reuters) - Oil hovered at a three-month low on Tuesday as concerns over tight supplies eased amid evidence of rising OPEC output and declining U.S. demand in the face of a weak economic outlook.

The losses extended a steep slide from the mid-July peak above $147 a barrel and came despite a storm in the Gulf of Mexico that was curbing oil output, shipping and refining.

U.S. light crude fell $1.13 to hit $120.27 a barrel, while London Brent crude shed $1.03 to $119.65 a barrel by 3:09 a.m. British time.

"The sentiment is more bearish now than before as concern over slower U.S. economic growth is impeaching demand," said David Moore, commodity strategist at Commonwealth Bank of Australia.

High energy prices have been of concern in the United States, the world's largest consumer of oil, already battered by a housing and credit crisis.

The losses came after a Reuters survey showed OPEC supply rose for a third consecutive month in July mainly because of increased output from the world's top exporter Saudi Arabia.

The boost in production from OPEC comes as soaring energy prices and an economic slowdown cut into energy consumption in the United States and Europe.

"We do expect oil prices to trend lower in the longer term," Moore said, adding that high prices in general would only curb demand.

However, conflicts in Nigeria and storms threatening the oil and gas infrastructure in the Gulf of Mexico could counter the downtrend in the short-term, he added.