NYMEX crude for May delivery settled at $105.35 a barrel, falling $1.92, or 1.79 percent. It had traded between $104.50 and $107.12.
European shares notched up their longest losing streak in four months, piercing a support level which led chartists to say there were further losses to come, while mining stocks led the fallers after weak data from China and the euro zone.
Investors appetite for riskier assets fell after weak purchasing managers indexes (PMIs) in both China and the euro zone raised concerns about the growth outlook and suggested Europe could fall into recession.
The cyclical mining sector, whose performance is closely correlated to growth in the global economy, was the main drag in Europe, with the STOXX Europe 600 Basic Resources index down 3.4 percent.
"For mining shares it has big implications, the China data means there will be a reduction in resource demand if construction slows in the country," Darren Sinden, senior sales trader at Silverwind Securities, said.
"The China PMI's are lending weight to a case of a hard landing and if Germany is the better part of Europe and it cannot grow, the situation for the markets will be difficult."
Shares in gold miner Randgold Resources were the most actively sold, down 12.6 percent in volume eight times its 90-day daily average, also hit by concerns about unrest in Mali, where the firm has roughly two-thirds of its production.
The pan-European FTSEurofirst 300 index of top shares closed down 1.1 percent at 1,079.49 points and broke a support level at 1,091 which represents its February high.
Chartists have said the break below 1,091 may herald a drop to 1,067 — its 50 day moving average — which may tempt buyers back into the market.
Sinden added that in Europe, investors should look for defensive yielding stocks which have a good dividend history and balance that with companies that have exports to the US, where economic growth is seen as stronger.
Data in the US has been showing momentum, but still shows some areas such as housing where there is weakness.
Fund managers said they would become more interested in the market if it fell further adding that the European Central Bank's long-term refinancing operation (LTRO) was still giving the market support as it helped put liquidity back into the financial system.
"We are starting to look at European and US banks following the pull back," said Bill Dinning, head of investment strategy at Kames Capital in Edinburgh, which has $76.4 billion under management.
"The US is much further along in the recovery process and the backdrop is more supportive, but the market needs to lose a bit more first."
An investor 'fear' gauge, the Euro STOXX Volatility Index , based on call and put options on the Euro STOXX 50 and which measures expected, or implied, swings in the underlying index going forward, jumped 9.4 percent, indicating nervousness after the data.
The put/call ratio of the Euro STOXX 50 options also demonstrated investors unease, rising to a two-week high, according to Thomson Reuters Datastream.
