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NEW YORK (CNNMoney.com) -- Oil prices fell Thursday as the global economic slowdown accelerated fears that demand for energy will continue to slide.

Crude settled $1.54 lower to $65.96 a barrel on the New York Mercantile Exchange.

The retreat in oil prices follows a morning rally when crude futures passed $70 a barrel. Oil prices were boosted in morning trade by the declining value of thedollar in the wake of the Federal Reserve's move to cut interest rates by 0.5%, reducing the key lending rate to 1%.

The decline in oil prices was supported a surging dollar in the afternoon. In addition, the market focused on the economic slowdown chipping away at energy demand.

"There is so much demand destruction with the credit crisis and the slowdown," said James Cordier, portfolio manager of OptionSellers.com. "And while the stock market might be in a hurry to predict when the economy will pick back up, commodities are different than that because they actually need physical demand to recover."

On Wednesday, light, sweet crude for December delivery rose $4.77 to settle at $67.50 a barrel on the New York Mercantile Exchange. Earlier in the session, oil rose more than $6 to trade at $68.91 a barrel. Oil prices rose Wednesday due to the weakness in the U.S. dollar.

The strength of the U.S. dollar is a major mover in the price of oil because crude futures are traded in U.S. currency around the world.

When the greenback loses value, that pushes oil prices higher, attracting foreign buyers and investors looking to hedge against inflation. When the dollar gains against other currencies, that pushes oil prices lower.

On Tuesday, however, oil settled at $62.73 a barrel, its lowest level in 17 months. Crude futures hit an all-time high of $147.27 a barrel on July 11. Oil prices sank more than 55% off summer-high prices as the global economic slowdown has cut into demand for energy.

While the stock market has picked up off its recent lows, the recovery in commodities will be slower.

"Commodities are simply - what is demand today, what is supply tomorrow," said Cordier. "If we are going into an economic slowdown that can last for 6 to 12 months, oil prices can fall for 6 months or 12 months.{"

The government reported that the nation's gross domestic product fell at an annual rate of 0.3% in the third quarter, compared with a 2.8% growth rate in the second quarter. The report raised fresh concerns that the economy is headed into recession.

Record-high oil prices over the summer months helped Exxon Mobil (XOM, Fortune 500) report a quarterly profit record for a U.S. company. On Thursday the largest U.S. oil company said its third-quarter net profit was $14.83 billion, or $2.86 per share, up from $9.41 billion, or $1.70, a year earlier.

As crude oil futures have plummeted, retail gas prices have also declined. Prices at the pump fell for the 43 consecutive days on Thursday, providing some relief for consumers strapped during the economic downturn.

The national average price for a gallon of regular gas fell another 4.2 cents overnight to $2.547, according to a daily survey by the American Automobile Association.

Prices are now down 38%, or $1.57, from the record high price of $4.114 a gallon set on July 17.

The Energy Information Administration supply report released Wednesday showed that demand for gas has averaged 8.9 million barrels per day over the last four weeks, which is down by 3.4% from the same period last year.

In addition, a recent U.S. Department of Energy report showed that Americans are driving 5.6% less than last year.

"That speaks volumes that gas prices fell 30-40% but demand is still down," said Cordier. "That gives a really good idea to the state of the consumer right now."