US oil prices plunged more than five dollars on Thursday, hit by a stronger dollar as investors flocked to the safe-haven currency on escalating fears about the weak economy and the threat of a new recession.
Investors ran for cover a day after the US central bank warned of significant downside risks to the economy -- concerns that won support on Thursday in the wake of poor Chinese manufacturing data.
Fears for the world's two biggest economies added to new tensions surrounding the eurozone debt crisis, causing investors to head for the dollar as cover and sending equities and commodity prices slumping..
A strong greenback makes dollar-priced crude more expensive to holders of other currencies, softening demand.
New York's main contract, West Texas Intermediate for November dived $5.41 (6.3 percent) to $80.51 a barrel.
Brent North Sea crude for delivery in November tumbled $4.87 to $105.49 in late London trading.
"The oil market is on a downside momentum with serious lack of risk appetite," said Myrto Sokou, an analyst at Sucden Financial Research.
"In addition to the weak macroeconomic data, we have to acknowledge the lack of oil demand from the US and emerging markets, amid ongoing concerns about growth opportunities in the medium-term."
The US Federal Reserve on Wednesday unveiled a $400-billion stimulus plan to reduce long-term interest rates but investors chose to focus on its warning about the outlook for the world's biggest economy and oil consumer.
The Fed painted a grim picture of the economy, strapped with slow growth, high unemployment and a depressed housing market.
"There are significant downside risks to the economic outlook, including strains in global financial markets," the central bank's Federal Open Market Committee warned.
Analysts at Phillip Futures said that "after the Fed’s announcement, the rise in the dollar prompted investors to sell risk assets such as crude oil and stocks."
Data meanwhile showed that manufacturing activity in commodities-hungry China contracted for a third month running in September.