Oil prices fell on Tuesday as doubts resurfaced over the pace of economic recovery after data showed another drop in U.S. wholesale business inventories and the U.S. government revised lower its forecast for global oil demand.

The U.S. Commerce Department reported that U.S. wholesale inventories plummeted 1.7 percent in June, and investors worried that businesses were running as lean as possible because of doubts about an economic recovery.

The decline, nearly double analyst expectations and the 10th straight monthly drop, pushed inventories to their lowest level in more than two years and weighed on U.S. equity markets. <.N>

U.S. crude fell $1.15 to settle at $69.45 a barrel. In London, Brent crude dropped $1.04 to settle at $72.46 a barrel.

I think the market will continue to test resistance and support levels in the recent range until further evidence surfaces that addresses the alleged recovery's sustainability, said Mike Fitzpatrick, vice president at MF Global in New York.

Optimism that a turnaround in the economy could bolster weak energy demand has helped oil prices recover in the months since crude dropped below $33 a barrel in December.

The U.S. Energy Information Administration cut its 2009 oil demand forecast, predicting consumption would fall by 1.71 million barrels per day this year, compared with previous estimates of a 1.56-million bpd drop.

The Organization of the Petroleum Exporting Countries forecast that the slow recovery in global consumption and rival oil supplies will shrink demand for its crude next year.

In light of weakening fundamentals, the sustainability of current prices will mainly depend on clearer signs of improvement in the global economy, OPEC economists said in a report.

Oil prices rose earlier on news that crude imports by China, the No. 2 consumer, had surged by 42 percent in July to a record 4.62 million bpd.

Traders were also awaiting weekly American Petroleum Institute inventory data late on Tuesday, followed by weekly U.S. government data on Wednesday.

Analysts polled by Reuters forecast the data will show a 700,000-barrel build in crude oil inventories in the week to August 7, while gasoline inventories were seen down 1.3 million barrels and distillate stocks off by 200,000 barrels.

(Additional reporting by Gene Ramos and Robert Gibbons in New York; Emma Farge, Maryelle Demongeot and David Sheppard in London; Editing by Marguerita Choy)

OPEC