Bond prices declined and the dollar strengthened against the euro.

The fall in oil prices comes as the chairman of the Federal Reserve, Ben S. Bernanke, provided a bleak assessment of the American economy over two days of testimony before Congress. It was also ignited by fresh evidence that Americans were reducing their energy use.

A weekly report by the Energy Department showed that commercial oil inventories, which were expected to fall, rose unexpectedly on Wednesday as more oil went into storage than expected instead of being refined and sold.

Bleak economic news has been building over the last few weeks, in particular with the renewed concerns over the American banking and mortgage industry.

At the same time, some of the geopolitical tensions that surrounded the move of oil prices toward $150 a barrel also showed some signs of easing.

Photo

The Bush administration said on Tuesday that it would allow a senior diplomat to attend a meeting of European and Iranian negotiators over Iran’s nuclear program, in what would be the highest-level talks between American and Iranian representatives since 1979. Fears of a military strike by Israel or the United States on Iran’s nuclear operations helped push oil prices to record highs last week.

“Things have been looking rather glum over the past couple of days,” said John Kilduff, an energy analyst at MF Global. He called the news about talks with Iran and the unexpected increase in oil inventories “a one-two punch for bears” that could signal a deeper drop in prices in coming weeks.

Oil prices have risen more than sevenfold since 2002 as fast-growing demand in developing countries has outpaced the growth in new oil supplies. In the past year, they’ve more than doubled, pushing gasoline prices above $4 a gallon in the United States and leading to frenzied efforts in Congress to address runaway energy costs.

Newsletter Sign Up Continue reading the main story Please verify you're not a robot by clicking the box. Invalid email address. Please re-enter. You must select a newsletter to subscribe to. Sign Up You will receive emails containing news content , updates and promotions from The New York Times. You may opt-out at any time. You agree to receive occasional updates and special offers for The New York Times's products and services. Thank you for subscribing. An error has occurred. Please try again later. View all New York Times newsletters.

But as high energy prices ripple through the economy, there is growing unease at how much they are contributing to higher costs for everything from food to consumer goods. Consumer prices have risen at their fastest pace in 17 years in June, according to a government report released Wednesday.

Advertisement Continue reading the main story

Businesses are also being hit hard. Automakers and airlines like General Motors and Delta Airlines are losing billions of dollars and laying off thousands of employees.

Consumers have sharply reduced their gasoline consumption in the face of record prices. Gasoline demand in the United States, for example, fell 5.2 percent last week, according to a nationwide survey by MasterCard, its 12th consecutive weekly drop.

Despite the falling price of oil, gasoline is still rising. Retail gasoline, on a nationwide average, set a record at $4.11 a gallon on Wednesday, according to AAA. Diesel also touched a new high of $4.84 a gallon.

As a result of these higher prices and reduced demand, refiners are using less oil. Instead of falling as refiners draw on their inventories, oil stocks built up. Oil stocks rose 2.95 million barrels to 296.9 million barrels last week, a report by the Department of Energy showed on Wednesday. Analysts had expected inventories to drop by about 2.2 million barrels.

Most analysts expect global oil demand to slow this year and next. OPEC on Tuesday cut its forecast for the growth in oil consumption next year by 100,000 barrels a day to 900,000 barrels a day. The oil cartel suggested that prices might also ease as more supplies come on the market.

“The decline in demand for OPEC crude combined with increasing OPEC capacity should further ease market conditions and likely help moderate prices,” the report said. “Whether the market will fully benefit from the softening fundamentals will depend on other factors such as geopolitical tensions, financial markets developments and downstream constraints.”