Oil prices tumbled below $67 a barrel to 16-month lows after the government reported big increases in U.S. fuel supplies -- more evidence that the economic downturn is drying up energy demand.

The Energy Information Administration said crude inventories jumped by 3.2 million barrels last week, above the 2.9 million barrel increase expected by analysts surveyed by energy research firm Platts. Gasoline inventories rose by 2.7 million barrels last week, and inventories of distillates, which include heating oil and diesel, rose by 2.2 million barrels.

Over the last four weeks, the EIA said, motor gasoline demand was down 4.3 percent from the same period last year. Distillate fuel demand was down 5.8 percent, and jet fuel demand was down 9.2 percent.

"The main theme here that's driving this market into new low ground is demand deterioration," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. "As we begin to see evidence that demand is leveling -- it doesn't have to increase, just level -- then we can start discussing a possible price bottom. But it appears premature at this point."

The euro fell below $1.28 for the first time in nearly two years Wednesday. The 15-nation euro dipped as low as $1.2736 in morning trading before recovering to $1.29, still down from $1.3003 late Tuesday in New York.

Meanwhile, the Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global oil supply, signaled that the group plans to announce an output quota reduction at an emergency meeting Friday in Vienna.

"There should be a short-term boost to prices when they announce a cut on Friday," Chu said. "But OPEC production has always been above their quotas, so there's a credibility problem."

Russia's top energy official said Wednesday that Russia, the largest oil producer outside of OPEC, may set aside an oil reserve to influence global prices -- but won't cut output, according to news reports. Deputy Prime Minister Igor Sechin said the government was considering creating an oil production reserve "which would allow it to work more efficiently with prices on the market."