U.S. crude oil pared some of its earlier losses after diving more than 3 percent on Tuesday to a more than three-year low, as Saudi Arabia's sharp cut in export prices to the United States looked likely to deepen a global supply glut that has already driven prices down 30 percent since June.
On Monday, Saudi Arabia surprised the market by raising prices for Asia and Europe but cutting prices for U.S. customers. Oil slid as much as $2 a barrel in late trade, and the sell-off continued Tuesday, triggering technical sell-stops.
"The Saudis have basically declared war on the U.S. oil producers," said Phil Flynn at Price Futures Group. "I think they believe that the only way they're going to survive in the long term is to break the market in the short term."
U.S. crude futures settled down $1.59 a barrel at $77.19 after reaching the lowest price since October 2011.
Many analysts say the U.S. shale boom could slow if crude stays below $80 a barrel.
The price of Brent for next-month delivery was also down more than $2 a barrel to trade below $83 after touching its lowest point since October 2010.
On Monday, longer-dated oil futures became more expensive than near-term contracts, putting charts into a contango structure for the first time since Jan. 17. On Tuesday, the Dec/Jan spread was around minus 8.