Oil fell by more than $2 to below $75 a barrel on Thursday as rising crude inventories and higher unemployment figures in the United States dampened expectations for stronger demand.
U.S. crude for March delivery declined $2.31 to $74.67 a barrel at 1511 GMT, while London ICE Brent shed $2.40 to $73.52.
The number of U.S. workers filing initial claims for state benefits increased by 8,000 to a seasonally adjusted 480,000 last week, the Labor Department said on Thursday. That was above the 460,000 expected by the market.
The weak economy has cut demand for crude in the world's largest energy consumer. The U.S. Department of Energy reported on Wednesday that U.S. crude stockpiles rose sharply last week.
Oil refineries in the United States are operating at just 77.7 percent of capacity, the lowest recorded level since 1990 barring hurricane disruptions.
There was not much inspiring on the demand side, with total product demand down 2 percent from a year ago, MF Global analyst Edward Meir said.
We suspect that the bias in energy will be lower over the next two days, particularly if the dollar continues to regain its footing.
The dollar rose to a seven-month high against the euro on Thursday. Strength in the greenback often pressures dollar-priced commodities as they become more expensive for holders of other currencies.
Oil had rebounded by around $4 this week from a six-week low of $72.43 on January 29. But prices are still far from a 15-month high close to $84 reached on January 11 and well below the record peak close to $150 in July 2008.
Some energy analysts, including Barclays Capital's Paul Horsnell, head of commodities research, remain confident that industrial demand for oil will soon recover.
The evidence of a recovery in manufacturing, better trucking indications and a slow turning of the manufacturing goods inventory cycle all still point to an improvement in diesel demand that will eventually percolate through to the data, Horsnell said in an e-mailed note.
Royal Dutch Shell Plc
Full-year output from Europe's second-largest oil company was down 3 percent, while low refining margins hit the firm with a $1.76 billion loss at its oil processing arm.
Weak demand has seen the price of oil products like gasoline and diesel struggle to keep pace with relatively high crude prices.
Crude has been supported during the global slowdown by expectations booming demand from emerging markets could outstrip supplies in the future.
State-owned Chinese oil firm CNPC expects China's crude oil imports to increase 9.1 percent to 212 million tonnes in 2010, or 4.24 million barrels per day, a company report showed on Thursday.
China's apparent oil demand will grow more than 5 percent to 427 million tonnes this year, or 8.54 million barrels per day (bpd), the report said.
(Additional reporting by Alejandro Barbajosa in Singapore; editing by Keiron Henderson)