Energy companies were pummeled as the price of crude oil sank 7 per cent, threatening more damage to an industry that has already been stricken with bankruptcies, layoffs and other cutbacks.
The price of US crude fell below USD 27 a barrel amid a global glut in oil supplies that seems to be getting worse. That's the lowest price since May 2003 and a far cry from the USD 100 a barrel it fetched in the summer of 2014.
Gold and US government bonds, traditional safe havens, rose in value as investors shifted money out of stocks.
The Dow Jones industrial average lost 377 points, or 2.4 per cent, to 15,639 as of 1:55 pm local time. It was down as much as 565 points earlier. The Standard & Poor's 500 index fell 39 points, or 2.1 per cent, to 1,842. The Nasdaq composite index sank 54 points, or 1.2 per cent, to 4,423.
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Oil prices had already fallen to 12-year lows this week, and the price of US crude has dropped 29 per cent so far this year. Benchmark US crude gave up USD 2.09, or 7.3 per cent, to USD 26.37 a barrel in New York.
Brent crude, a benchmark for international oils, lost USD 1.12, or 3.9 per cent, to USD 27.64 barrel in London. Heating oil prices also sank 5 per cent to 86 cents a gallon.
"We're starting to see production declines basically two years after rig count started to decline," Liu said. He said production will keep falling and oil prices will stabilize in the middle of 2016, then start rising.
Energy stocks were pelted. Devon Energy lost USD 2.36, or 10.1 per cent, to USD 21.12 and Murphy Oil fell USD 1.20, or 7.3 per cent, to USD 15.18. Chevron sank USD 4.42, or 5.4 per cent, to USD 77.09, the biggest loss in the Dow average.