NEW YORK (CNNMoney.com) -- Oil prices fell sharply Thursday, a day after sinking to their lowest levels in over six weeks, as the U.S. dollar continued to strengthen and stocks plummeted, amid the fallout from Greece's debt crisis.
Gasoline prices rose for the fourth straight day, gaining 1 cent to $2.93 a gallon, according to motorist group AAA.
What prices are doing: Crude for June delivery dropped $2.86, or nearly 3.6%, to settle at $77.11 a barrel Thursday, extending the sell-off for the third straight day.
Crude prices had surged Monday amid optimism about Greece's $146 billion bailout and the possibility that the Gulf of Mexico spill could halt supply. But that optimism quickly faded, sending prices some 7% lower as fears of a debt crisis contagion in Europe shook the global markets.
Despite the whipsaw action, crude prices are still 49% higher than this time last year.
What's moving the market: Prices plunged Thursday as the dollar continued its rally against battered European currencies.
The dollar surged 1.7% against the euro to a new 14-month high. A stronger dollar makes crude, which is priced in the U.S. currency, more expensive for foreign investors, pushing down demand and prices.
Crude prices also took a hit because the debt crisis in Europe resurfaced, sending global stock markets down sharply. The Dow Jones industrial average (INDU) fell by nearly 1,000 points Thursday, erasing 2010 gains, before rebounding.
Oil prices followed, as traders took Europe's woes as a sign that the global economy and energy demand could be knocked off the course to full recovery.
Other signs of instability in Europe, including Thursday's parliamentary election in the U.K. and civil unrest in Greece, are also adding to uncertainty.
In recent weeks, Europe's woes have overshadowed a spate of strong economic, housing and jobs data in the U.S., including Thursday's Labor Department report that showed the third straight weekly decline in jobless claims.
What analysts are saying: "The sky is falling. The eurozone is on the minds of everyone," said Rich Ilczyszyn, market strategist for futures broker Lind-Waldock.
"This is a run, not a walk, but a run into safety," he said.
Intense focus on Greece and contagion fears are likely to put downward pressure on oil prices over the near-term, especially as chaos in Europe sends investors away from risky assets such as equities and non-U.S. currencies, says Ilczyszyn.
Today, there's "panic to get out at any price," he said, referencing the nearly 1,000 drop in the Dow Jones industrial average.
Lower than average demand for crude has also weighed on the price of crude, which analysts say suggests prices above $80 a barrel are too high. The EIA on Wednesday said that crude inventories rose 2.8 million barrels last week, nearly double the 1.54 million barrels analysts estimated, according to a survey by research firm Platts.
Given the resurgence of uncertainty and pessimism in the market, it's now unclear how far crude prices could fall, analysts say. The outlook for prices depends on the volatility of equity market, they say.
"Predicting a bottom in crude oil prices now is akin to catching a falling knife, but likely no more difficult than predicting a bearish reversal was just a week ago," said Tom Pawlicki of MF Global.
Gasoline: Gas prices continued to rise and are now about 40% higher than this time last year, according to data from motorist group AAA.
Analysts expect that gasoline prices will peak within a tight range of $3 a barrel by the height of the summer driving season in the United States, the world's largest energy consumer, even taking into account the disruption from the BP oil spill in the Gulf of Mexico.
|Overnight Avg Rate||Latest||Change||Last Week|
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