By Maryelle Demongeot SINGAPORE (Reuters) - Oil edged down on Tuesday as worries about weakening oil demand overshadowed fears that the Atlantic hurricane season could threaten supply. U.S. light crude for July delivery fell 16 cents a barrel to $127.60 by 0638 GMT, reversing Monday's 41-cent gain as the start of the hurricane season stirred concerns that oil and natural gas output could be disrupted in the Gulf of Mexico. London Brent crude fell 47 cents to $127.55 a barrel, off an earlier low of $127.13. Prices rebounded from earlier lows on Tuesday after the U.S. dollar slipped on a report that investment bank Lehman Brothers may raise up to $4 billion of capital, stirring worries about more credit crisis fallout. "You cannot disregard the hurricane season. But it is a difficult call, pitching U.S. demand versus the potential hurricane threat and other supply worries," said Mark Pervan, senior commodities analyst with ANZ in Australia. The first storm of the Atlantic hurricane season, Tropical Storm Arthur, forced Mexico to shut two of its three main crude oil ports because of rough seas over the weekend, kicking off the hurricane season in the Atlantic. Even though it quickly weakened into a tropical depression, Arthur was a timely reminder of the startup of the hurricane season that forecasters predict will be more active than usual. Hurricane Katrina in 2005 wreaked havoc in the Gulf of Mexico and forced the closure of several U.S. refineries for weeks. Adding to supply worries, Russia's production for May fell 0.7 percent from a year ago to 9.4 million barrels per day (bpd), the fifth straight monthly decline in output from the world's second-largest oil exporter. But attention on Tuesday shifted back to concerns over potential demand destruction as prices remained near last month's record high $135.09, which has forced several Asian countries to cut oil subsidies and is crimping demand in the developed world. The U.S. Energy Information Administration said last week U.S. oil demand in March fell to the lowest level for that month in five years, down nearly 800,000 bpd from a year earlier, due to record fuel prices and a weak U.S. economy. Fresh fears of fallout from the global credit crisis added to the downward pressure, with Standard & Poor's cutting ratings on Lehman Brothers Inc, Merrill Lynch & Co Inc and Morgan Stanley on Monday. More direction will emerge with the release of U.S. weekly stocks data on Wednesday, with a preliminary poll showing analysts expect U.S. crude oil inventories to have risen by 1.1 million barrels last week, gasoline stocks up by 600,000 barrels and distillates up 1.4 million barrels. | 
