Brent crude hurtled to fresh seven-month lows below $45 a barrel as panic of market oversupply showed no signs of letting up.
The losses prompted Britain’s FTSE 100 to sink another 0.5 per cent to around 7,413, with oil giants and mining stocks the biggest losers.
Oil prices have been suffering as the US produces more, while demand from Asia has also showed signs of slowing.
Last year, stock markets suffered huge losses prompted by falling oil prices, which hit as low as $30.
Now values could easily hit $40, according to experts amid fears this could again trigger wider market panic.
Stock markets have hit record highs in recent weeks, but this could become undone if the oil price crash sabotages confidence.
Connor Campbell, financial analyst at Spreadex.com, said: “The oil slick only got thicker this Thursday, the markets drowning in a well of the black stuff.
“Despite a brief bounce following yesterday’s larger than expected fall in US crude inventories the current oil glut fears aren’t receding, especially since ramped up production in places like Libya and America means OPEC’s ability to affect global output may be waning.
“Of course this decline is awful news for the FTSE, which plunged half a percent and is now only a handful of points above 7400.
“BP and Shell, slipping 0.7 per and 1.3 cent respectively, were the biggest drag on the UK index”
Yesterday, the Iranian oil minister tried to shore up oil prices by suggesting OPEC could cut production and therefore supply further.
But markets took little notice of the comments.
FXTM chief market strategist Hussein Sayed said: “It’s evident that oil prices are becoming the primary driver of the financial markets.
“After both benchmarks entered a bear market with Brent plunging below $45 for the first time since November, investors are becoming more concerned as to when the plunge will stop.
“Back in November 2016, when OPEC and non-OPEC producers, including Russia, decided to cut production, most market participants…