World oil prices dropped near 110 dollars on Tuesday as traders expressed relief after Tropical Storm Fay avoided oil and gas production facilities in the Gulf of Mexico.

The market was also dragged down by worries that weaker US oil demand could spread to Europe and Japan, analysts said.

London's Brent North Sea crude for October delivery shed 1.06 dollars to 110.88 dollars a barrel in electronic deals.

New York's main contract, light sweet crude for September delivery, fell 1.07 dollars to 111.80.

"Crude prices were lower, extending losses from yesterday (Monday) as fears over a tropical storm in the Gulf of Mexico were gradually fading away," said Sucden analyst Andrey Kryuchenkov.

"Tropical Storm Fay hit the Florida Keys, progressing further inland without reaching hurricane strength and without casing any serious damage to energy producing facilities."

Fay hit Florida with severe winds and drenching rains early Tuesday, but it did not strengthen into the potentially devastating hurricane residents had been dreading.

The Miami-based National Hurricane Center said Fay, which claimed dozens of lives around the Caribbean over the weekend, should begin to weaken now that it was over land.

"Tropical Storm Fay will not be an oil event and is landing in Florida, away from any oil assets," said Petromatrix analyst Olivier Jakob.

"There is another tropical low currently under watch in the Atlantic for potential development but its current location is a little too northerly to have at this stage any confidence that it could become a threat to the US Gulf."

Crude futures dived on Monday on receding US storm concerns, and as the key Baku-Tbilisi-Ceyhan oil pipeline through conflict-stricken Georgia looked ready to reopen soon.

Prices have fallen significantly since hitting record highs above 147 dollars per barrel last month, as the market has been dampened by concerns that slower global economic growth will slash energy demand, traders said.

"Global stock and commodity markets are still haunted by a string of negative economic data and persistent tightness in the credit market on both sides of the Atlantic," Kryuchenkov said.

He added: "It is important to watch out for economic data from Europe and Asia in order to determine the severity of the actual slowdown in global growth and whether growing demand in emerging market economies could compensate for weaker demand in the West."

Turkey said Monday it expects to reopen the Baku-Tbilisi-Ceyhan oil pipeline in a few days after completing repairs to a fire-damaged link.

Inaugurated in 2006, the 1,774-kilometre (1,109-mile) pipeline carries Azeri oil from the Caspian Sea fields via Georgia to Turkey's Mediterranean port of Ceyhan, and is capable of transporting 1.2 million barrels of crude per day.

Despite recent heavy losses, oil prices have gained more than 10 percent in value this year after breaking through 100 dollars for the first time at the start of 2008.