By Janet McGurty
LONDON (Reuters) - Oil fell below $124 a barrel on Tuesday after the International Energy Agency cut its forecast for world oil demand growth and investors took profits after a rally to record highs the previous day.
A decline in China's oil imports in April, the first year-on-year drop in 18 months, and the fallout from the worst earthquake in three decades also raised questions over demand in the world's second-largest oil consumer.
U.S. crude lost 58 cents to $123.65 a barrel by 5:06 a.m. EDT (0906 GMT), after earlier falling to as low as $123.10. On Monday, it hit a new record of $126.40.
London Brent crude fell 47 cents to $122.44.
"The market is dominated by the IEA -- by how much they downgraded demand," said Rob Laughlin of MF Global.
Record high oil prices will slow demand growth this year to 1.03 million barrels per day (bpd), said the IEA, 230,000 bpd less than its previous forecast.
The adviser to 27 industrialized countries also said demand growth from emerging countries led by China and the Middle East remained strong.
But investors wondered if that was still the case.
"All eyes are on what is happening in China. If the damage from the earthquake is as bad as it now seems, it could affect demand," Laughlin said.
China's April crude oil imports fell by 3.9 percent from a year ago to 3.47 million barrels per day (bpd), and were also down from the record of 4.07 million bpd in March, official Chinese data showed.
The market has kept a close watch on oil demand in China and India, whose economic booms have helped send prices up six-fold since 2002.
Weekly U.S. inventory data to be released on Wednesday will provide further direction to the market after an unexpected fall in distillates stocks, which include heating oil and diesel fuel, pushed prices to new highs last week.
U.S. crude inventories are expected to have risen for a fourth-straight week, while products stocks would also rise, helped by an increase in refinery utilization, a preliminary Reuters poll of analysts found.
(Additional reporting by Maryelle Demongeot in Singapore)
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