The cost of oil dropped in dramatic fashion Tuesday, as a stronger dollar and economic jitters helped push crude futures down more than $5 to $136.04 a barrel.

Traders sent light, sweet crude for August delivery down $6.23 a barrel at one point, before ending the day down $5.33 on the New York Mercantile Exchange. Crude has fallen more than $9 this week.

In explaining the fall, some analysts cited concerns that weakening economies would cut into worldwide demand.

"We have strong concerns about the sharp rise in oil prices," the Group of Eight countries said in a statement from their annual summit. "The world economy is now facing uncertainty and downside risk persists."

Other reasons for the price slump included a rebounding dollar, a reduced threat to U.S. production from Hurricane Bertha and an easing of tensions over Iran's nuclear enrichment program.

Stocks responded with an oil-slicked surge. The market also took reassurance from comments by Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and JPMorgan Chase & Co. Chief Executive Jamie Dimon that underscored growing strength in the financial sector.

All the major indexes rose at least 1 percent, with the Dow Jones industrials gaining 152.25 points, or 1.4 percent, to 11,383.21. Several energy analysts, however, cautioned against getting too excited about crude's downward trend.

"I view this as a two-day or three-day price correction that will be followed by new highs by month's end," said James Ritterbusch, president of a Galena, Ill.-based oil trading advisory company.

Stephen Schork, who writes a newsletter on energy markets, echoed that warning.

"We have seen this movie before. ... Crude weakens a little and the bubble-bears jump in," he said in a note to clients. "We are not going to take the bait."

Consumers continue to see higher prices at the pump.

Nationwide, the average price for self-serve regular gasoline stayed flat Tuesday at a record-high $4.108 a gallon, but diesel rose less than penny to an average price of $4.807 a gallon, also an all-time high, according to AAA's daily price survey.

(Begin optional trim)

In California, the average gas cost fell less than a penny to $4.559 a gallon Tuesday, a relief from the state's peak average of $4.610 a gallon on June 19. The statewide average price of diesel was up a penny to $5.138 a gallon.

"Prices have been declining very slightly for two of the past four weeks in Southern California, and right now they seem to be in a holding pattern both locally and around the country," said Jeffrey Spring, spokesman for the Automobile Club of Southern California.

(End optional trim)

Fallout from high fuel prices prompted the Energy Department to lower by a third its U.S. demand projection for 2008. The agency said in a report Tuesday that high prices and a weak economy would cut the nation's consumption for fuel and petroleum by about 400,000 barrels a day for the year.

Worldwide oil consumption would rise by almost 1.2 million barrels a day, the government said.

Texas oilman T. Boone Pickens, an investor in wind and natural gas fuel for vehicles, on Tuesday unveiled a proposal to substantially cut the nation's reliance on oil imports. Under what he called the Pickens Plan, the United States would spend $1.2 trillion to build wind-energy facilities that would supplant natural-gas-fueled power plants, freeing that fuel for use in vehicles.

Pickens, who will fund an advertising campaign for the plan, released a television spot that he narrates. The high cost of oil is "killing our economy," he said in the ad. "We don't need any more talk. We need action and we need a plan."