Crude oil was little changed below the overnight record of $127 a barrel even as traders expected a rebound in weekly US distillate stocks.

US light sweet crude for June delivery traded at $125.80 a barrel during morning trade. London Brent crude was up 19 cents at $124.29.

Crude oil surged to a record $126.98 a barrel on the New York Mercantile Exchange on Tuesday following news that OPEC major Iran was studying a plan to cut crude output.

US crude prices later settled $1.57 higher at $125.80 a barrel. London Brent crude closed $1.19 higher at $124.10 a barrel.

Iranian experts were reviewing a proposal to cut crude output, the Fars News Agency quoted Iranian President Mahmoud Ahmadinejad as saying.

"There has been such a proposal and it is under expert review," the report quoted Ahmadinejad as saying.

Iranian oil minister Gholamhossein Nozari had earlier said Iran was reviewing how much oil it pumps, but no decision had been taken on any changes.

Oil started the week lower on Monday after data showed oil imports by No 2 consumer China in April fell to an 18-month low.

The International Energy Agency also predicted a fall from record-high oil prices as global demand growth slows this year to 1.03 million barrels per day (bpd), down 230,000 bpd from its earlier forecast.

The US has stopped stockpiling and has vowed to suspend deliveries to the Strategic Petroleum Reserve until crude prices fall below $75 a barrel.

Emerging market demand for oil, however, remained high and much investments have flown into oil as traders hedge against the falling dollar amidst rising inflation.