Oil drops $4 to $128 a barrel on dollar gains

By Matthew Robinson

NEW YORK (Reuters) - Oil fell $4 to $128 a barrel on Tuesday, pulled down by the stronger U.S. dollar and concerns moves to cut Asian fuel subsidies could hurt demand growth.

U.S. crude traded down $4.01 to $128.18 a barrel in late post settlement trade, after settling down $3.34 at $128.85 in the first day of trade on the New York Mercantile Exchange this week following the U.S. Memorial Day holiday.

London Brent crude LCOc1 settled down $4.06 at $128.31 a barrel.

The losses came as the U.S. dollar rose broadly after April U.S. new-home data showed an unexpected rise, dragging oil off record highs over $135 a barrel struck last week.

Oil price have doubled in the past year as speculators pile into commodities as a hedge against inflation and the weaker dollar, extending a six-year rally as supply struggles to keep pace with rising demand in emerging economies like China.

Prices rose Monday when Royal Dutch Shell said it was forced to cut production in Nigeria after rebels from the southern Niger Delta blew up an oil pipeline.

Further weakness on Tuesday came from signs some Asian countries could ease subsidies that have kept down prices, raising concern demand in the region could falter.

Demand in top consumer the United States is already under pressure from high prices.