Crude oil futures settled down 4.6 percent at $81.84 a barrel, the biggest percentage drop since November 2012 and the lowest settlement since June 28, 2012.
Brent crude for November slid earlier and lurched lower toward the end of the day, dropping by more than $4 a barrel to dip below $85 a barrel for the first time since 2010. It was the biggest one-day drop in prices since 2011. The benchmark settled at $85.04, $3.85 lower on the day.
Oil dived more than $4 a barrel on Tuesday, its biggest drop in more than two years as mounting evidence of slackening demand and unrelenting U.S. shale output left traders struggling to peg a floor for crude's four-month rout.
The abrupt acceleration of an over 26 percent slide in prices since June was triggered by three news items that epitomized the market's turn: a downgrade in global oil consumption forecasts; projections for another big boost in shale oil; and reluctance by OPEC members to cut output.
Oil is struggling to find a floor after Saudi Arabia made clear that it was focused on maintaining market share, not supporting prices with unilateral production cuts.
Other members appear to be taking a similar tack. A source familiar with oil policy in Iran, normally one of the first in OPEC to call for production cuts, followed Kuwait in saying there was no need to rein in supplies.
"I think it's just continued the rationalization that all signs continue to suggest that OPEC is not going to do much," said Dominick Chirichella, senior partner at the Energy Management Institute, New York.
The slide began early in the day after the International Energy Agency, the West's energy watchdog, cut its estimates for global oil demand growth by 250,000 barrels per day for this year and by 90,000 bpd for 2015. It said demand for OPEC oil would be 200,000 bpd lower for both years.
The diminishing outlook for consumption is colliding with an unrelenting rise in U.S. shale oil, leading to a glut of crude that has knocked Brent lower since June.
Losses deepened in mid-afternoon after the U.S. Energy Information Administration projected that fast growing shale basins would increase output by some 106,000 bpd in November from a month earlier.
"Recent price drops appear both supply and demand driven," the IEA said in its monthly oil market report. "Further oil price drops would likely be needed for supply to take a hit—or for demand growth to get a lift."
The heavily traded Brent/WTI spread was volatile, first narrowing to under $2 a barrel, near its lowest in over a year, before widening back out to $3.20 later in the day as U.S. oil futures deepened losses.
Weak Europe weighs Brent
The IEA's supply forecast is "piling on'' already weak economic data from Europe, said analyst Phil Flynn of Prices Futures Group in Chicago. " Numbers out of Europe show deflationary pressures are extending even into the UK."
Germany's economy could shrink in the third quarter, but any recession, as defined by two or more consecutive quarters of declining output, should not last long, the chief economist of think tank ZEW said.
Investors were looking ahead to weekly U.S. data on oil and product inventories for price direction.
U.S. commercial crude stocks likely rose last week, while refined products likely fell, according to a Reuters survey ahead of the inventory reports due out on Wednesday and Thursday, a day later than usual due to a holiday.
CNBC contributed to this report.
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Although this article makes the falling price for a barrel of oil seem like a "crisis", in reality it's really a blessing.
I paid 2.99/gal for gas a couple weeks ago and today I see the local price has dropped again to $2.89/gal.
That price change alone will affect the poor and middle class in a very positive way. The cost of everything will go down . . . . everything that is except taxes. Obama and the liberal progressive democrat machine need their monopoly on the control of our country.
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