The losses came after Saudi Arabia's Oil Minister Ali Al-Naimi said the country - which is the largest oil producer in OPEC - will stick to its policy to maintain output. The Organisation of Petroleum Exporting Countries last month refused to cut production at a meeting in Vienna.

Prices rallied earlier on speculation recent losses were excessive.

"On close examination, a lot of Naimi's comments are quite negative," said Gareth Lewis-Davies, a London-based analyst at BNP Paribas. "He is unwilling to change his position. It's too early to call a bottom."

WTI for January delivery fell $US2.36, or 4.2 per cent, to $US54.11 a barrel on the New York Mercantile Exchange, the lowest settlement level since May 2009.

Prices jumped as much as 4 per cent earlier. The more-active February future was down $US2.43 at $US54.36.

Brent for February settlement declined $US1.91, or 3.1 per cent, to $US59.27 a barrel on the London-based ICE Futures Europe exchange, the lowest close since May 2009.

Volatility  

"There is a lot of volatility here," said Stephen Schork, president of the Schork Group in Villanova, Pennsylvania. "I don't think anyone is really buying this market with any sort of significant conviction."

WTI and Brent have slumped about 45 per cent from this year's peaks in June as a surge in shale drilling lifted US output to the fastest pace in three decades amid slowing growth in world demand.

OPEC members including Saudi Arabia, the world's largest exporter, have resisted calls from producers such as Venezuela and Ecuador to reduce output to stem the price drop.

"At the end of the day, there is still a lot of oil out there," said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. "The so-called comeback is pretty anemic. We should continue to see supply basically outpacing demand."

Temporary Instability      

Saudi Arabia and OPEC would find it "difficult, if not impossible" to give up market share by cutting crude production, Al-Naimi said, according to comments published by the Saudi Press Agency.

Global oil markets are experiencing "temporary" instability caused mainly by a slowdown in the world economy, he said.

"It's the effective end of OPEC," said Francisco Blanch, head of global commodities and derivatives research for Bank of America. "Basically Saudi has pulled the plug and is letting the market balance itself. If the price of oil doesn't have a moderating agent, it's going to be all over the place."

The Russian economy must adapt to the reality of oil prices that could fall as low as $US40 a barrel, President Vladimir Putin said as he faces the worst financial crisis since coming to power in 2000.

Russian Output      

"I don't know how quickly it will happen if prices stay at today's level, or if they will drop lower than $US60, $US40," Putin said on Thursday at his annual press conference in Moscow. "The economy will structure itself accordingly, however much is necessary."

Crude output from Russia, the world's largest crude producer, will be similar to this year's 10.6 million barrels a day in 2015, Energy Minister Alexander Novak told reporters at a meeting of the Gas Exporting Countries Forum in Doha, the Qatari capital.

Bloomberg