NEW YORK — Oil prices tumbled more than $4 a barrel today as Tropical Storm Dolly grew increasingly unlikely to threaten supply, knocking out one more reason traders had to prop up prices.

The sell-off, which came as the existing futures contract was set to expire, was a throwback to last week's sharp declines and dragged crude to its lowest level since early June.

Comments by the president of the Federal Reserve Bank of Philadelphia helped strengthen the dollar considerably, giving traders even less reason to bet that crude will challenge record highs again any time soon.

Light, sweet crude for August delivery fell $4.56 to $126.48 a barrel on the New York Mercantile Exchange. Earlier, the contract dropped as low as $125.63.

The declines offered further evidence that investors who only a week and a half ago drove prices to a new high above $147 a barrel are now quickly pulling money out of the market. There are also indications that the price of oil is killing demand, especially in the U.S., which consumes far more oil than any other country.

"This is more of the long exit from the market by the hedge funds," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. "A lot of these investors who have been supporting prices are hitting the road."

Oil prices rose Monday as Tropical Storm Dolly bore down on oil and gas installations in the Gulf of Mexico, but that did little to dent the steep declines left over from last week's sell-off.

Forecasters at the National Hurricane Center in Miami say Dolly is likely to become a hurricane, but they do not expect it to become a major hurricane.

"Most people I knew were looking for a stronger price rally," Ritterbusch said. "When we can't muster up much steam," he added, large investors dump bets that prices will rise because they sense there is little support for sustained gains.

By morning in the U.S., the storm's center was about 265 miles southeast of Brownsville, Texas. It was moving west-northwest at around 13 mph, with winds expected to strengthen Tuesday to hurricane force.

"Unless new projections put the storm on a more northerly track, it is unlikely to have a bullish impact on oil and natural gas prices," Addison Armstrong, director of market research at Tradition Energy, said in a morning research note.

Meanwhile, the dollar rose sharply against the euro after Charles Plosser, president of the Federal Reserve Bank of Philadelphia and a voting member of the Fed's Open Market Committee, said the central bank will probably need to boost interest rates "sooner rather than later."

Higher interest rates could help prop up the slumping dollar. The currency's decline has been a major factor in oil's ascent, as investors bought dollar-denominated crude contracts as a hedge against inflation and a weakening greenback. When the dollar strengthens, such currency-related buying often unwinds.

Other energy commodities followed crude in heading sharply lower.

Natural gas fell below $10 per 1,000 cubic feet for the first time since April — more evidence that hurricane concerns are rapidly dissipating despite Royal Dutch Shell's weekend decision to evacuate workers from rigs in the western part of the Gulf.

"You know gas bulls have a problem when precautionary evacuations in the (Gulf) cannot even excite any bullish momentum," analyst and trader Stephen Schork said.

Prices for the power generation and cooking fuel dropped to $10.032 per 1,000 cubic feet, down 47.8 cents. Earlier, natural gas dipped as low as $9.889.

Natural gas has plummeted since early July, when it reached its highest point in more than two years following a sharp run-up fueled by expectations of strong summer demand.

"We're not getting a real hot summer as some had forecast," reducing the need for gas-fired electricity to power air conditioning, Ritterbusch said. "Natural gas had a much larger rally than crude this year. Now we're seeing a much larger decline."

Oil's decline is easing the pressure on drivers. Retail gas prices continue to fall away, with the cost for a gallon of gas falling more than a penny overnight to $4.055, according to AAA, the Oil Price Information Service and Wright Express.

It is the first time since January that gas has fallen for two consecutive weeks, Schork said. Still, a gallon of gas still costs 30 percent more than it did last year, or more than 80 cents, he said.

In other Nymex trading, heating oil sank 8.28 cents to $3.6651 per gallon, while gasoline futures tumbled 10.68 cents to $3.1103 per gallon.

In London, September Brent fell $4.06 to $128.55 a barrel on the ICE Futures exchange.