A global sell off on equity markets dragged down crude prices by nearly 3 percent Thursday, the first decline this week.
The price for a barrel of crude dropped by more than $1 immediately when U.S. markets opened, with the Dow Jones industrials giving up more than points. Markets in Asia and Europe fell early in the day.
Also pushing oil prices lower was a strengthening dollar. Crude prices have risen steadily this year as the dollar lost value against the euro. Because oil is bought and sold largely in dollars, someone holding euros can essentially by more crude for less.
Since the beginning of February, the dollar has lost more than 16 percent of its value against the euro. On days when the dollar climbs, like Thursday when the U.S. currency gained a half cent against the euro, crude prices tend to fall.
Benchmark crude for December delivery gave up $2.12 to settle at $77.46 a barrel with one day remaining until the futures contract expires on the New York Mercantile Exchange. Most of the trading already moved to the January contract, which lost $2.05 to settle at $78.05.
Still, with oil near $80 per barrel, consumers are starting to feel the pinch.
Leaders with the International Energy Agency in Paris, the U.S. Department of Energy, and even the Organization of Petroleum Exporting Countries have warned that rapidly rising energy prices could slow any economic rebound.
Since crude prices have soared, oil refiners have been shutting down facilities because they must pay higher prices for crude, but they can't make up those costs with higher gas prices. Demand for gasoline, jet fuel and diesel, is dismal.
That has helped to send retail gas prices higher.
"Bottom line, the race is on; between falling demand and falling production," analyst Stephen Schork said. "Regardless of the outcome, one result is almost guaranteed ... the consumer will lose. And, given that consumer spending is responsible for more than two-thirds of the U.S. economy, that does not bode well for the strength of the incipient recovery."
At the pump, prices ticked higher overnight to a new national average of $2.638 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of regular unleaded is 6.1 cents more expensive than last month, and 59.1 cents more expensive than the same time last year, when prices were in free fall because of the economic crisis.
The Energy Information Administration also reported that natural gas stockpiles rose to a new record high last week, largely because industrial customers are using a lot less energy.
In other Nymex trading, heating oil fell 5.22 cents to settle at $1.9964 a gallon. Gasoline for December delivery lost 4.19 cents to settle at $1.9695 a gallon. Natural gas for December delivery added 8.8 cents to settle at $4.342 per 1,000 cubic feet.
In London, Brent crude for January delivery gave up $1.83 to settle at $77.64 on the ICE Futures exchange.
Associated Press writers Pablo Gorondi in Budapest, Hungary and Eileen Ng in Kuala Lumpur, Malaysia, contributed to this report.