Brent crude dipped on Thursday in Asian trade after five straight days of gains, slipping below $122 a barrel on concern that rising prices will hurt demand from the world's top oil consumers the United States and China.

Unrest in oil exporting regions North Africa and the Middle East continues to support prices, as investors fear the turmoil could hamper more supplies after civil war interrupted the flow from Libya.

Brent crude fell 54 cents to $121.76 a barrel at 0511 GMT after rising to a 2-1/2-year high above $123 on Wednesday.

U.S. crude futures declined 51 cents to $108.32 a barrel, after touching $109.15 on Wednesday, the highest since September 2008.

High crude prices are pushing up retail fuel prices worldwide, exacerbating the inflationary pressure governments face from the rising cost of food and raw materials.

Current price levels should have a negative impact on demand, said Tetsu Emori, a Tokyo-based commodities fund manager at Astmax Investments.

The International Energy Agency said on Wednesday that the current oil price is harming global economic growth and is a mounting concern for consuming nations.

Saudi Arabia and the United Arab Emirates have raised output to compensate for supply loss from Libya but there has been no coordinated supply policy response from OPEC to rein in high prices.

The nature of this lack of response and general drift of recent policy statements suggests that producers are a long way from seeking actively to bridle in the upside for prices, leaving the door to $130 Brent swinging open, analysts at Barclays Capital led by Paul Horsnell said in a note.

The latest data from the United States showed that gasoline and distillate demand has stalled while China raised retail prices to record highs to ease the burden of higher crude prices for state refiners

U.S. government data on Wednesday showed gasoline demand at the world's top oil consumer fell 1.2 percent from year-ago levels. Gasoline demand should pick up as the driving season begins in the United States, but high prices would temper growth in consumption.

(U.S.) demand will be challenged as higher retail prices and little wage growth lead to a rising burden of gasoline spending in U.S. households' budget and disposable income, Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas, said in an overnight note.

Gasoline stocks fell less than forecast while a rise in crude oil stocks were in line with expectations.

Tightening monetary policy in Europe could also slow demand for raw materials there. The European Central Bank was expected to announce a rate rise later on Thursday.


China, the world's second largest oil consumer, announced on Wednesday it will increase retail gasoline and diesel prices by up to 5.5 percent to ensure refiners produce enough to meet demand.

Analysts said the hike was too late and insufficient to cover crude costs which have risen around 20 percent since February. The disparity means the margins of state-owned refiners are squeezed, which eventually may encourage them to slow rather than increase supplies.

China still has some subsidies around oil and petrol prices relative to other countries, said Ben Westmore, commodities analyst at the National Australia Bank, adding that it remained to be seen if the price hikes would hurt demand.

It really comes down to margins more than the actual end price for oil. If the price of imports mean more expensive crude, then it's more likely that they are not going to put it through the refineries.

In contrast, South Korea, the world's fifth largest crude oil importer, has put pressure on refiners to cut retail oil prices as part of its battle against inflation.

Uncertainty in the oil market and concern that the rally may have run its course for now has thinned recent trade volumes. Volatility has subsided after surging in early March, Reuters data showed. <.OVX>

There's risk on the upside and downside. It's probably caused a lot of market participants to wait and see, Westmore said.

(Editing by Ed Lane)