The dollar's rise against the euro and other currencies stripped away some of oil's appeal to investors who have been betting for months that the greenback would continue to falter. When the greenback gains ground, commodities such as oil lose their value as a hedge against inflation, prompting selling. Also, a stronger dollar makes oil more expensive to investors overseas.

As the dollar has strengthened this week, oil futures have dropped more than $7 from their highs to their lowest levels since April 14. On Thursday, light, sweet crude for June delivery fell 94 cents to settle at $112.52 a barrel on the New York Mercantile Exchange, after trading as low as $110.30. Meanwhile, the euro bought $1.5457 in afternoon trading, down from $1.5642 late Wednesday.

Meanwhile, a strike that cut production at an Exxon Mobil Corp. facility in Nigeria ended Thursday, giving investors another reason to sell. Oil prices jumped last week on word of the strike and a separate labor action in Scotland, which ended Tuesday. Nigeria is a major U.S. oil supplier.

Analysts caution that oil's swoon could be temporary. The dollar's protracted decline has been a major factor behind oil's rise from about $64 a year ago, and future dollar weakness could easily push crude futures above $120.

"It's all about the dollar," said James Cordier, president of Tampa, Fla., trading firms Liberty Trading Group and OptionSellers.com. "I don't think the dollar is going to stay strong."

Indeed, oil prices rebounded more than $2 from their lows late in Thursday's trading session after the dollar stopped gaining ground against the euro.

The dollar's recent gains have come on a view that the Federal Reserve's interest rate cutting campaign is nearing its end; lower interest rates tend to weaken the dollar. The Fed cut rates a quarter percentage point on Wednesday, and did not give a clear indication of its future plans. But with the benchmark federal funds rate at 2 percent, investors sense that the Fed can't cut rates much further.

"It's not going to be zero (percent), it's not going to be a half (percent)," Cordier said.

However, other nations' central banks are considering raising interest rates, actions that could further weaken the dollar, Cordier said. If that happens, or if there is a major supply disruption, crude prices could easily rise to $130 in June, he said, and that could push gas prices to $4 a gallon.

At the pump, the average national price of a gallon of regular gas rose 0.6 cent to a record $3.623 Thursday, according to a survey of stations by AAA and the Oil Price Information Service. Diesel prices inched 0.1 cent higher to a record $4.251 a gallon. Gas prices are already higher than $4 in many parts of the country, including in California and Hawaii.

Despite crude's recent declines, gas prices are likely to keep rising for a while. Crude's rapid rise over the past year has squeezed refinery profit margins; refiners must pay for the oil they refine into fuel, but have been unable to raise gas prices fast enough to keep up with crude. While oil prices are up about 73 percent in the last year, gas prices are only up 22 percent.

On Thursday, Exxon Mobil Corp. reported a first quarter profit of $10.9 billion, but missed analyst expectations. The company said significantly lower worldwide refining margins reduced earnings by about $1 billion in the quarter.

Analysts expect gas prices to peak within the next two months.

In other Nymex trading Thursday, June heating gasoline futures fell 2.81 cents to settle at $2.8782 a gallon, and June heating oil futures fell 4.03 cents to settle at $3.1177 a gallon. June natural gas futures fell 28.2 cents to settle at $10.561 per 1,000 cubic feet. The Energy Department said natural gas inventories rose by 86 billion cubic feet last week, more than many analysts had expected.

In London, June Brent crude futures fell 86 cents to settle at $110.50 a barrel on the ICE Futures exchange.

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AP Business Writer John Porretto in Houston contributed to this report.

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