Crude oil futures fell more than $3 a barrel to $84.06 a barrel Thursday.
Oil was hammered Thursday by relentless anxiety about oversupply and waning global demand, sending Brent and West Texas Intermediate hurtling to levels unseen since 2012.
Oil was under pressure as euphoria over the U.S. Federal Reserve's last policy meeting appeared to evaporate. The jitters ricocheted across markets, and sent Wall Street reeling as investors feared the central bank was becoming more pessimistic about domestic growth.
Yet the proximate cause for the market's worries is surging U.S. oil supplies. The world's largest economy has rapidly become one of the world's largest producers of oil on the heels of a shale revolution. The U.S. is producing just shy of 9 million barrels a day, up more than 70 percent since 2008, according to Energy Information Administration (EIA) data.
A recent rally in the dollar has been one of the principal drivers of crude weakness, analysts say, in addition to the laissez-faire attitude of Saudi Arabia, the world's largest oil producer.
The oil giant has been largely relaxed in the face of a 20 percent drop in Brent, and is perceived to be reluctant to cut production in order to boost prices. That perception has also helped to push U.S. gas prices closer to $3 per gallon, their lowest in at least four years.
With risk-sensitive markets tanking, West Texas Intermediate ended the session at $85.81, its weakest since December 2012. closed down by more than $1 to $90, its lowest settlement since June 2012.
The potential for supply disruptions from the Middle East "remains formidable," said analysts at Barclays on Thursday, who cut their price forecasts on Brent to $93 in the fourth quarter.
"If supply disruptions materialize, we will revisit our forecasts. In the meantime, we do expect an OPEC supply response though it will be lagged, and Saudi Arabia will not shoulder the heavy cutting needed on its own," the bank added.
In the face of surging output, a move in WTI below its 10-year average at $82 is not out of the realm of possibility, said Brown Brothers Harriman, in a research note. "
"Technically, a break of $73 a barrel could send WTI toward $64, which corresponds with the 2010 low. A break of that would indeed be significant."