Oil fell to a 3-1/2-year low below $48 a barrel on Tuesday as signs grew that the global economy was in worse shape than thought and after OPEC opted to delay talks on further output cuts.
U.S. stocks closed sharply lower on Monday and Japan's Nikkei average followed suit, sliding more than 6 percent with exporters hit by a stronger yen after news the U.S. economy has been in a recession for a year heightened risk aversion. European stocks also fell.
U.S. light crude for January delivery slipped $1.92 or 3.9 percent to a low of $47.36 a barrel, its lowest since May 2005 and almost $100 off the record peak of $147.27 reached in mid-July. That followed a more than 9 percent dive on Monday.
By 0923 GMT, U.S. crude futures had recovered slightly, trading down $1.25 at $48.03.
London Brent crude dropped $1.30 to $46.67.
Producer group OPEC over the weekend deferred a decision on whether to deepen production curbs until later this month as Saudi Arabia and other Gulf members called for greater compliance, a delay that sent oil prices tumbling on Monday.
"OPEC was the key reason for the sell-off at first and then the poor performance on equity markets helped it follow through," said Rob Laughlin, oil analyst at MF Global in London.
More bearish news could be in store on Wednesday, with U.S. crude oil inventories likely having risen by 1.8 million barrels last week, a third consecutive build, as imports continued to increase, a preliminary Reuters poll of analysts showed.
The Organization of the Petroleum Exporting Countries is ready to cut production by a significant amount when it meets later this month in Algeria in order to whittle down high stocks, the group's secretary-general said on Monday.
But Saudi Arabian Oil Minister Ali al-Naimi told Saudi-owned al-Hayat newspaper OPEC would not need to make a further output cut in Algeria if producers comply with previous curbs and fuel stocks decline.
Adding to the uncertainty, Abu Dhabi National Oil Co (ADNOC) told major Asian customers that it will increase term crude oil supplies next month, although traders said it seemed unlikely the UAE was reneging on its OPEC obligations.
With demand destruction in focus, concerns about the pace of non-OPEC oil supply growth were set aside.
Oil production in Russia, which vies with Saudi Arabia as the world's top producer, fell in November by 0.4 percent versus October, Energy Ministry data showed on Tuesday.