Oil prices plummet more than $6 amid economic fear

"Traders get spooked and simply sell positions," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. "The threat of recession, at some point the market's going to plug that in."

Lingering concerns about the health of the financial sector continued to weigh on banking stocks, reminding energy traders that oil prices are not immune to troubles elsewhere in the market.

"Since investment banks have been increasing their ... exposure to commodities, their current distress can have (a) significant impact on oil prices if they are forced to liquidate commodity positions in a run for cash," Olivier Jakob, an analyst at Petromatrix in Switzerland, said in a research note.

The latest monthly market report from the Organization of Petroleum Exporting Countries gave traders further reason to unload oil.

The cartel predicted world oil demand will rise by 900,000 barrels a day in 2009, or 100,000 barrels per day less than this year. OPEC blamed the slowdown on a slumping economy and high pump prices in richer industrialized countries.

Meanwhile, a five-day strike by Brazilian oil workers that began early Monday had less effect on output than feared.

The dollar fell to a new low against the euro, but that did little to halt oil's decline. The weaker dollar has driven prices sharply higher in recent months, enticing investors to pump money into oil as a hedge against inflation and making crude cheaper for overseas buyers.

In Washington, President Bush continued to press the Democratic-run Congress to open up new areas to offshore oil drilling. The president lifted a ban on Continental Shelf drilling Monday, but a Congressional prohibition remains.

"I readily concede it won't produce a barrel of oil tomorrow, but it will reverse the psychology," Bush said at his first White House news conference since April.

At the fuel pump, retail gas prices in the U.S. remained at a record near $4.11 a gallon, according to auto club AAA, the Oil Price Information Service and Wright Express. Diesel rose six-tenths of a penny to its own high of $4.83 a gallon.