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Crude oil prices dropped by over five dollars on Tuesday as the US dollar rose, Iran downplayed the possibility of a war, and concerns about an economic slowdown stoked fears regarding future oil demand.

On the New York Mercantile Exchange (NYMEX), crude oil for August delivery fell by $5.33 to $136.04 per barrel, having dropped by $3.92 during the previous session on Monday.

Meanwhile, Brent crude for August settlement on London's ICE Futures Europe exchange fell by $5.44 to settle at $136.43 per barrel, having reached an intra-day high of $142.96 per barrel.

The decline in prices follows the record highs seen last week, where Brent Crude reached $146.69 on July 3rd and NYMEX crude hit $145.85 on the same day of trading.

Oil prices dropped yesterday as the bleak economic outlook for many of the world's economies led to market speculation that this could reduce the demand for oil, especially at current prices.

Meanwhile, Iranian President Mahmoud Ahmadinejad dismissed the chance of a war with the U.S. and Israel over his country's nuclear intentions, diminishing concerns of supply disruptions. Speaking to reporters in Kuala Lumpur yesterday, Ahmadinejad said 'Don't worry, there won't be any war in the future.'

The comments followed earlier remarks from Ali Shirazi, a representative to the naval forces of the elite Revolutionary Guards, who said "Tel Aviv and the US fleet in the Persian Gulf would be the targets that would be set on fire in Iran's crushing response." Iran has also said it may blockade the Strait of Hormuz, the shipping lane for a fifth of the world's crude, if its nuclear facilities are attacked.

The stronger dollar also influenced market sentiment on the downside yesterday. The currency traded near a two-week high against the euro, reducing the demand for oil as an inflation hedge.

A receding threat from Hurricane Bertha to oil and gas production in the Gulf of Mexico also added to the bearish outlook.

In early trading on Wednesday NYMEX WTI crude had risen by $0.86 to $136.9 per barrel at 07:15 GMT and ICE Brent crude was $1.02 higher at $137.45.