Oil prices fell more than $3 in a commodities-wide pullback driven by a rebound in the US dollar.

The declines in the oil market were further encouraged by two separate reports Friday showing an uptick in OPEC crude oil output and an expected decline in US travel over the September 1 Labour Day holiday weekend.

"Crude and products futures are retreating sharply on moderate volume after yesterday's rally, as a rebounding dollar and a round of profit-taking are stalling the return of bullish momentum," Addison Armstrong, an analyst at Tradition Energy, said in a research note.

US crude fell $3.07 to $118.11 a barrel at 6.30 (Malta time), after surging nearly five percent in the previous session. London Brent crude fell $2.99 to $117.17 a barrel.

Oil and other commodities lost traction as the dollar fought back from the previous day's sharp correction versus a basket of major currencies.

A weak dollar can raise commodities prices by boosting the purchasing power of buyers using other currencies, while a stronger dollar tends to have the opposite effect, analysts have said.

Prices were also weighed down by evidence of rising supplies of crude oil from the Organisation of Petroleum Exporting Countries. Industry consultant Petrologistics said OPEC oil output was expected to rise this month by 450,000 barrels per day to 32.95 million bpd.

Adding to selling pressure, the US auto and travel group AAA said that Labour Day holiday travel was expected to fall this year by the largest amount in at least eight years as consumers struggle with higher gasoline prices and airfares.

Oil prices are down sharply from their peaks above $147 a barrel in mid-July amid concern high energy costs are taking a toll on global fuel demand.

Today's losses came after a big climb in prices earlier in the week that was supported by rising tension between the United States and Russia, the world's second biggest oil producer.

Russia said yesterday it would respond with more than just a diplomatic protest to a US deal with Poland to station parts of a US missile defense shield on Polish soil.