Oil fell more than 3 percent on Thursday to $77 a barrel, dragged lower by concerns over the outlook for the European economy and about the pace of U.S. recovery after a surprise jump in U.S. unemployment.
A rise in the dollar against the euro also put pressure on commodities prices as the euro fell to a one-year low against the yen due to uncertainty over the ability of the Greek government to cope with its fiscal crisis.
U.S. crude futures for April fell $2.73 to $77.27 a barrel by 11:51 a.m. EST (1651 GMT). London Brent crude traded down $2.56 to $75.53 a barrel.
Economic data is testing the optimism of some investors who had hoped that rebounding economic growth would push up demand for commodities, said Carsten Fritsch, analyst at Commerzbank.
The markets are reassessing the assumption that a solid recovery is already in place in the United States, and economic figures from the euro zone have also been weak.
U.S. jobless claims data suggested on Thursday that the world's biggest energy consumer was recovering more slowly than expected. The number of U.S. workers filing initial claims for unemployment benefits rose unexpectedly in the latest week, a U.S. Labor Department report showed.
Before the move lower on Thursday, oil prices had risen by around $10 per barrel since hitting a low below $70 in the first week of February. They are still close to the top of their trading range over the last year.
The initial move downwards on Thursday was triggered by a sharp rise in the value of the dollar, which saw its index against a basket of other currencies jump. <.DXY>
The dollar was lifted by comments by U.S. Federal Reserve Chairman Ben Bernanke, who reiterated his commitment to low U.S. interest rates.
The firmer dollar, which makes oil and other commodities more expensive for holders of other currencies, also dragged gold down to near a two-week low on Thursday.
Edward Meir, analyst at brokers MF Global, said he saw the direction of the dollar as the predominant guiding force in the oil market.
We suspect that the dollar still has more room to run on the upside...and as a result, should keep the downward pressure on commodities for a little while longer, Meir said.
U.S. data this week has dampened expectations of a quick rebound from the deep economic slowdown of the last two years.
New orders for long-lasting U.S. manufactured goods excluding transportation unexpectedly fell in January, suggesting a loss of momentum in the pace of economic recovery.
The concern in oil markets is that slow recovery will see a longer-than-expected period of low demand for energy, especially in the United States.
U.S. crude oil stockpiles rose by 3 million barrels to 337.5 million barrels in week ended February 19, data from the Energy Information Agency showed on Wednesday. But U.S. gasoline inventories fell 900,000 barrels to 231.2 million barrels, versus analysts estimates of a 400,000-barrel build.
U.S. refiners normally start stockpiling in April for the driving season, which starts at the end of May and peaks in June-July.
(Editing by Keiron Henderson and Marguerita Choy)