SAN FRANCISCO (MarketWatch) -- Crude-oil futures closed with a loss of more than $2 a barrel Tuesday, as ongoing concerns over easing demand as well as strength in the dollar pushed prices to their lowest level in nearly three months.

Energy futures finished mainly lower.

Crude for September delivery fell by $2.54, or 2%, to close at $122.19 a barrel on the New York Mercantile Exchange. Earlier, the contract touched a low of $120.75. It hasn't traded or closed at levels this low since early May.

"Nothing goes up in a straight line, and crude's run has been phenomenal," said Sean Brodrick, a natural resources analyst for MoneyandMarkets.com. Crude was trading at just $78 a barrel a year ago.

"A short-term pullback is a normal and necessary part of any bull market, and crude is no different," he said in emailed comments.

On the currency market, the dollar index DXY, +0.02% was recently at 73.307, up from 72.694 in late North American trading Monday. Strength in the U.S. currency typically weighs on dollar-denominated commodities such as oil and gold.

“ 'A short-term pullback is a normal and necessary part of any bull market, and crude is no different.' ” — Sean Brodrick, MoneyandMarkets.com

The greenback shrugged off downbeat housing data reported earlier Tuesday and took comfort from upbeat consumer confidence data and a recovery in stock prices. See Currencies.

In other news, the Organization of the Petroleum Exporting Countries President Chakib Khelil called oil prices "abnormal" and said they could pull back to $80 a barrel over the long term if the dollar were to continue to recover and global political worries eased, Reuters reported Tuesday.

"Whether prices drop to $80 ... or not, there can only be the unavoidable conclusion that markets are finally working as they are supposed to, as higher prices inevitably act as a brake on demand," said John Kilduff, an analyst at MF Global, in a note to clients.

Khelil, who is Algeria's oil minister, also said that OPEC should not consider cutting production after the steep decline in prices over the last two weeks since markets are now balanced, according to Reuters.

"Crude futures had an impressive rally recently, hitting all-time highs earlier this year," said Andrey Kryuchenkov, analyst with Sucden Research.

"The market was in need of a correction, which could continue if we see more signs of slowing demand and sluggish economic growth in OECD states," he said. The Organization for Economic Cooperation and Development is a 30-nation group that includes mostly developed countries from North America, Europe and Asia.

In the long run, the oil market still looks fundamentally strong, Kryuchenkov said.

Petroleum data on deck

Energy traders looked ahead to Wednesday's data on U.S. petroleum supplies from the Energy Department, covering the week ended July 25.

The data are expected to show that crude supplies fell by 1.3 million barrels, according to a Platts survey of analysts. MF Global's Kilduff expects to see a decline of 1.8 million barrels.

Gasoline supplies likely rose by 400,000 barrels in the latest week, the Platts survey said. But MF Global is looking for a decline of 1.1 million.

And distillate inventories, which include heating oil, were likely up by 1.8 million barrels, according to Platts. MF Global expects a climb of 800,000 barrels.

"Imports are unlikely to recover from last week's depressed 9.806 million barrels per day, given a two-day closure of the Houston Ship Channel due to Hurricane Dolly," according to Linda Rafield, Platts senior oil analyst and editor of Platts Futures & Derivatives Review.

The Houston Ship Channel closed July 23 and was only partially open on July 24. Traffic to Corpus Christi, site to three oil refineries, was also halted for two days, according to Platts.

"Dolly also likely caused a decline in refinery utilization rates along the Gulf Coast," Rafield added. Platts said analysts project a drop in refinery utilization rates to 86.6% in the latest week from 87.1% in the week ended July 18.

Retail gasoline under $4; force majeure in Nigeria

The average U.S. price for a gallon of regular gasoline stood at $3.955 for the week ended July 28, according to government data released late Monday. That's the first fall below $4 since June 2.

"A $20-plus drop in crude is certainly one of the causes," said Kilduff, who also noted that Transportation Department figures show that the number of U.S. highway miles traveled in May fell by a record 3.7%.

Against this backdrop, September reformulated gasoline fell 6.1 cents to close at $3.0132 a gallon.

September heating oil also dropped 8.9 cents to end at $3.4985 a gallon.

The decline in petroleum prices, as well as a contract expiration, weighed on the natural-gas futures market Tuesday.

Natural gas for August delivery tacked on 5.4 cents to close at $9.217 per million British thermal units.

The contract expired at the close of Tuesday's session, after which September became the front month. That contract closed down 86.5cents at $9.13 per million British thermal units.

Also Tuesday, Royal Dutch Shell RDS.A, -1.68% (RDSA) said that it won't be able to meet a significant part of its Nigerian oil-export obligations for the next two months after a pair of militant attacks left two oil pipelines damaged, Dow Jones Newswires reported.

A Shell spokesman said the oil giant declared force majeure with customers after assessing the damage to its Nembe Creek and Rumuekpe pipelines, according to Dow Jones.

Shell didn't specify how much crude would be affected, the report said.

Force majeure is a clause in contracts which frees parties from obligation in the event of extraordinary circumstances beyond their control.

On Monday, oil futures closed up $1.47 at $124.73 a barrel on the New York Mercantile Exchange, getting a lift from the supply disruption in Nigeria.

Elsewhere in commodities trading Tuesday, prices for gold futures dropped more than 1%. See Metals Stocks.