Oil fell for the third straight day Thursday and neared the psychologically-significant $110 level, as data confirming a sluggish U.S. economy and the rising dollar reduced investors' demand for oil as an alternative investment.

Oil, which had traded as low as $110.80, closed down 96 cents to $112.50 per barrel. Oil hit a record high of $119.90 per barrel on April 22, 2008.

The other major energy commodities also closed substantially lower Thursday. Heating oil closed down about 6 cents to $3.10 per gallon, unleaded gasoline closed down 5 cents to $2.85 per gallon, and natural gas closed down about 25 cents to $10.59 per million BTUs.

Take a picture: oil falls, again

Economist David H. Wang said manufacturing data released Thursday by the Institute of Supply Management indicating that the U.S. industrial sector contracted for the third consecutive month, and the dollar's rise against the world's other major currencies, took some the wind out of oil's sails, for now, at least. (The dollar rose 2 cents against the euro Thursday to $1.5440).

"We have a U.S. economy running on about 1 of 8 cylinders, if you can call it running, so that has to dampen demand somewhat," Wang said. "And even though the most important variable in oil demand growth today is emerging market countries, the oil market can not deny the impact on oil demand of a U.S. economy near or in recession. The U.S. economy is still too big to ignore." Wang added that he does not have any trading positions in any energy form.

Still, Wang noted that it would "not be prudent" to think that oil is ready to stage an extend pull-back. Global demand, particularly in Asia, remains strong, U.S. gasoline consumption, while down, is still large, and many institutional investors still list oil as an asset of choice for return-on-equity. All the above factors, he said, would have to change for oil to move substantially lower, below $80 per barrel. Wang sees oil's price staying in the $95-$120 range for the remainder of 2008.

"And when you do the math you see that $80 oil would require an oil price drop of $32 from today's price," Wang said. "Given current oil use trends, and unless some alternative energy form appears, it's difficult to envision oil dropping another $30 or so."