Benchmark crude lost $2.77 to settle at $79.97 a barrel on the New York Mercantile Exchange, the second day of sharp declines. The June contract fell by 4 percent on Tuesday.
The dollar gained again on the euro, which fell to a 14-month low against the dollar. Because oil is bought and sold in dollars, they often move in opposite directions.
The value of the dollar dictates how much oil investors can afford.
But there are also signs that demand for energy is not as great as some had thought, which sank prices as well.
The Energy Information Administration said Wednesday that crude inventories rose by 2.8 million barrels last week.
Analysts expected an increase of only 1.5 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.
And inventories of gasoline and distillates are rising as refineries step up production.
"The fact that refiners are processing as much crude as possible and still ending up with barrels going into storage is an especially bearish situation," said energy consultancy Cameron Hanover. "We have not seen anything like this since late 1985, just before prices collapsed." While US supplies remain high and demand weak, analysts said falling oil prices are more likely a result of speculative transactions and worry about European debt problems than a reaction to market fundamentals.
Meanwhile, gasoline futures prices dropped substantially Tuesday, down about 11.3 cents. That's the biggest drop since Sept. 1, when prices fell about 20.4 cents.
In Wednesday Nymex trading gasoline lost 10.18 cents to settle at $2.2204 per gallon, and heating oil gave up 7.50 cents to settle at $2.1845 a gallon. Natural gas fell 2.2 cents to settle at $3.991 per 1,000 cubic feet.
In London, Brent crude was down $3.06 to settle at $82.61 on the ICE futures exchange.
