Oil prices tumbled over 5 per cent to levels not seen since the early 2000s on Thursday as a sliding yuan and a second emergency halt in China's stock trading this week left Asian markets in turmoil.
A huge supply overhang and near-record output levels also continued to drag on prices, which have now shed 70 per cent in value since the current downturn began in June 2014, causing pain to companies and governments that rely heavily on oil revenues.
China let the yuan slip on Thursday, sending regional currencies and stock markets tumbling as the offshore yuan fell to a fresh record low since trading started in 2010.
China's stock markets were suspended less than half an hour after opening, the second emergency suspension this week.
Mirroring the weakness across financial markets, the global benchmark Brent fell over 5 percent and around $2 per barrel to a low of $32.16 per barrel, a level not seen since April 2004, before edging back to $32.23 by 0752 GMT.
In the United States, West Texas Intermediate (WTI) futures also dropped over 5 per cent to a low of $32.10 per barrel, a level not seen since late 2003, before inching back to $32.20 by 0752 GMT.
"With oil markets producing 1 million barrels a day in excess (of demand) and very little sign of any rational response from the supply side, it's little wonder we're seeing pressure again," said Michael McCarthy, chief market strategist at CMC Markets in Sydney.
Analysts also said that the dispute between Saudi Arabia and Iran was bearish for crude markets.
"On the downside for prices, both countries will be utilising maximum crude oil production capacity to increase market share at the expense of the other - especially with Iran returning to the global market following the nuclear accord," ING bank said.
Oil exporters in pain
The oil price crash comes on the back of near-record output from producers such as the Organization of Petroleum Exporting Countries (OPEC), Russia and North America, which has left storage tanks brimming with unneeded supplies.
The price plunge is causing countries that rely heavily on oil export revenues economic pain. The premium for Saudi 5-year credit default swaps (CDS), a bankruptcy insurance, has more than tripled since late 2015 to over $180 (see chart).
Exacerbating the oil market woes is weakening demand, especially in Asia and especially China which is seeing the slowest economic growth in a generation.
"The Chinese economy actually contracted in December and that's adding fire to fears of a more rapid slowdown in the world's second biggest economy," McCarthy said.
With the global economy looking shaky due to China's slowdown, analysts said the outlook for oil remains for cheap prices for much of this year.
"We think low $30s (per barrel) is a floor, but once positioning gets so biased anything can happen," said Virendra Chauhan, analyst at Energy Aspects in Singapore.
Analysts said a build-up in US stockpiles contributed to the drop in prices.
"The US inventory numbers showed a 16 million increase in distillates and other products, so it's clear they're still producing at rates that are unsustainable," McCarthy said.
The huge storage overhang means that even if US production falls this year as drillers succumb to low prices, it will take many months to work down excess supplies.