Oil prices dipped below $80 a barrel Thursday in Asia as the U.S. dollar strengthened.

Benchmark crude for December delivery was down 60 cents to $79.80 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. The contract added 80 cents to settle at $80.40 on Wednesday.

Crude has traded near $80 a barrel for the last few weeks as investors watch a volatile dollar and mixed signs on the strength of the U.S. economy. Oil has jumped from $32 in December as traders have used crude and other commodities as a hedge against a weakening dollar and inflation.

The euro slipped to $1.4834 on Thursday in early Asian trading from $1.4872 the previous day.

U.S. crude inventories unexpectedly fell last week, a sign demand could be improving. The Energy Information Administration said Wednesday that crude stocks fell 4 million barrels while analysts had expected a rise of 1.3 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

"Very slowly, the imbalances in the U.S. oil market have been sorting themselves out," Barclays Capital said in a report. "A key part of that adjustment has been the winnowing away of the overhang of inventories."

Barclays expects oil prices to average $76 a barrel in the fourth quarter and $85 next year.

In other Nymex trading, heating oil fell 1.55 cents to $2.07 a gallon. Gasoline for December delivery dropped 1.36 cents to $2.00 a gallon. Natural gas for December delivery rose 1.00 cent to $4.74 per 1,000 cubic feet.

In London, Brent crude for December delivery fell 54 cents to $78.35 on the ICE Futures exchange.

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