Oil prices tumbled on Wednesday, as traders feared oil demand would be strained by the looming economic downturn and the dollar rallied.  

The Organization of Petroleum Exporting Countries, which supplies some 40% of the world’s oil, is expected to cut production substantially later this week in a bid to boost sagging prices. However, bearish economic sentiment, gloomy corporate earnings, and a strengthening dollar ruled the day.  

The benchmark oil contract settled lower by $5.31 at $66.87.  Oil now trades 54% lower than the record high it reached in mid-July.   

A higher-than-expected jump in oil inventories helped to push prices lower.  The Energy Department's weekly oil inventories report showed oil stocks grew by 3.2 million barrels, far more than the 2.4 million barrels analysts projected. 

The rallying greenback, which recently traded higher by 1.44% as compared to a basket of other major currencies, is also deflating oil prices, according to Olivier Jakob, Managing Director of Petromatrix in Switzerland. 

"We have these concerns about ... oil demand, but the real driver today was the dollar," Jakob said. 

Other analysts, such as Ron Planting of the American Petroleum Institute, see the dollar's appreciation as less important.

"Historically the dollar has had some impact on oil prices, although that is significant -- I think the number one factor has been the decline in demand in the United States," he said. 

Metals Sink

Elsewhere in commodities, gold declined $32.80 to settle at $735.20 an ounce on the Comex division of Nymex. Silver fell 61.5 cents to settle at $9.46 an ounce.

Tom Hartmann, a commodity analyst at Altavest Worldwide Trading, attributed gold’s precipitous decline to a mixture of two factors: traders dropping gold positions in favor the dollar and general economic pessimism.

 “People are flocking back to the dollar. If the current move continues, and consumer confidence remains depressed, we probably have a lot lower to go,” he said.

“We’re probably going to hit $700 [an ounce], and we might test $680.”