Light, sweet crude for September delivery fell 1.24 dollars to settle at 113.77 dollars a barrel on the New York Mercantile Exchange. In the morning session, price slumped to as low as 111.34 dollars a barrel, trading down 3.67 dollars.

The dollar rose to the strongest level in almost six months against the euro and a seven-month high against the yen. Meanwhile, the sterling pound fell versus the dollar on speculation that the Bank of England will have to cut interest rates because of the slowing economy.

A strengthening dollar usually reduces the appeal of crude and other commodities as hedges against inflation, and makes the dollar-denominated commodities more expensive to overseas buyers.

OPEC predicted in its monthly report Friday that the global demand for oil this year will fall by 30,000 barrels a day and the world demand growth next year will be "the lowest since 2002."

The crude futures have lost more than 24 percent since the all-time peak of 147.27 dollars a barrel reached on July 11.

In London, Brent crude for October delivery fell 1.13 dollars to settle at 112.55 dollars a barrel on the ICE Futures Exchange.