Q: Failing o2 Sensor - Horrible Fuel economy

I have been getting horrible fuel economy in my 1991 BMW 318i. Since the engine is an Inline 4 with 1.8L displacement I do not see any reason for it to not perform efficiently on gas. The tank is about roughly 11 gallons and every full tank lasts me 150 Miles, when in fact people on BimmerForums are achieving 400 miles per tank. So I checked on all of the possible leads that would explain this issue but I can't figure it out. So I unplugged my o2 sensor and the exhaust became normal and the air/gasses out of the tip have less pressure when I hold my hand against the exhaust tip, but as I drove a few miles without the o2 sensor the check engine light came on. So I went home and plugged it back, fired it up and the exhaust gasses were much more aggressive when coming out, as if the engine has a dead cylinder although the rhythm is continous.

My car has 290000 miles.
My car has a manual transmission.