NEW YORK —Oil fell sharply on Tuesday after the US Federal Reserve signaled it was taking aim at inflation, triggering a rebound in the US dollar and a sell-off across the commodities markets.

The dip into negative territory also came after two of the world's biggest energy forecasters lowered their outlook for global energy demand as high prices bite consumers.

US crude was down $3.13 at $131.22 a barrel at 1:45 p.m. EDT (1745 GMT), bringing it well below last Friday's record near $140. London Brent crude fell $3.03 to $130.88.

"Crude is down basically as the dollar is taking off after Bernanke's remarks, which sparked some profit-taking," said Phil Flynn at Alaron Trading in Chicago.

Federal Reserve Chairman Ben Bernanke said on Tuesday the central bank would "strongly resist" inflation, cementing views that interest rates will rise later this year.

Oil and other commodities have surged to record heights in recent months as investors piled money into the markets as a hedge against the weak dollar and inflation.

Dealers added that a report from the International Energy Agency revising 2008 global energy demand down more than 200,000 barrels per day as Asian economies move to roll back fuel subsidies added to oil's losses.

The US Energy Information Administration, in a separate report on Tuesday, also cut its forecast for world demand growth by about 200,000 barrels per day, with consumption in the United States shrinking dramatically.

"US consumption of liquid fuels and other petroleum is expected to decline by about 290,000 bpd in 2008 because of higher petroleum product prices and slower economic growth," the EIA said in its report.

Oil prices had risen roughly seven-fold since 2002 as soaring demand from China and other developing countries strained available supplies.

Despite the flagging demand, analysts remained concerned that world production may continue to fall short.

"It's a tricky situation because supply is falling as fast as demand is," said Francisco Blanch of Merrill Lynch.

The IEA said it cut its expectations for supply growth from countries outside OPEC to 460,000 bpd from 680,000 bpd, while the EIA said cut its forecast for non-OPEC output growth to 310,000 bpd from 600,000 bpd.

The head of Brazilian oil company Petrobras said on Tuesday that he expected oil prices to continue rising over the next five years as producers face limitations on boosting output to meet rising Asian demand.

The Organization of the Petroleum Exporting Countries (OPEC) has repeatedly declined calls for more output from consumer nations, saying high prices have nothing to do with a shortage of supply.

"We are panicking too much," OPEC secretary general Abdullah al-Badri told the Reuters Global Energy Summit on Tuesday. "I want to say, there is no shortage now and in the future."

OPEC will meet with world consumer nations later this month to discuss high oil prices.