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You're sure right about a bad/disconnected O2 Sensor killing the FE. You can also get the same FE loss with an exhaust leak before the upstream sensor. On a recent long trip I blew a header flange gasket and took a 3-5 mpg hit. The added air introduced into the exhaust, and picked up (sensed) by the O2 Sensor, would send a lean signal to the PCM and tell it richen up the mixture. I couldn't find anyone willing to fix the problem (real tight fit) so I ended up having to drive it ~1500 miles that way.
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