Oil fell more than 4 percent to below $73 a barrel on Thursday, its biggest dive in five months, as weak manufacturing data from China and the United States fueled concerns about faltering economic growth.
The pace of China's manufacturing growth eased in June to the slowest in months as government took steps to cool the property market and curb bank lending. The Institute for Supply Management said its barometer of U.S. manufacturing activity fell by much more than expected to 56.2.
U.S. crude for August delivery fell $3.30, or 4.3 percent, to $72.33 a barrel at 12:29 p.m. EDT, its biggest one-day percentage loss since February 4.
Falling in tandem with base metals, gold and equity markets, oil prices declined for a fourth straight session, extending the 9.7 percent slide of the second quarter, the first quarterly drop since 2008, as prices .
ICE Brent fell $3.09 on Thursday to $71.92.
I think oil is reflecting general negative commodity market sentiment after weaker-than-expected China PMI data overnight, said Carsten Fritsch, oil analyst at Commerzbank in Frankfurt.
Weaker equity markets are also weighing on sentiment, he added.
Markets fell early, after China's official purchasing managers' index (PMI) fell to a weaker-than-expected 52.1 in June, the lowest since February, from 53.9 in May.
They extended losses after the U.S. government said initial jobless claims unexpectedly rose last week. This could mean weak June nonfarm payrolls data on Friday. A Reuters survey has forecast a decline of 110,000, the first fall this year.
The ISM report also disappointed markets, as did data showing pending sales of previously owned U.S. homes plunged a record 30 percent in May to an all-time low. The U.S. dollar index .DXY fell 1.25 percent and S&P 500 stocks index .SPX was down 0.85 percent.
Oil prices came under pressure on Wednesday when the government reported a surprise U.S. gasoline stockpiles rise last week. Distillate stocks also rose more than forecast.
Crude stockpiles did fall 2 million barrels, more than the expected decline of 900,000 barrels and the government report showed Cushing, Oklahoma, crude stocks shed 795,000 barrels to 36 million barrels.
Energy provider Genscape said on Thursday that stocks fell 285,000 in the week to Tuesday.
The recent slip from record high storage at the Cushing hub has helped narrow the price spread between the front-month and near-month U.S. crude contracts, narrowing it to around 56 cents on Thursday.
After helping spark crude prices to above $79 on Monday, Hurricane Alex hit Mexico on Thursday, sparing U.S. oil facilities near its path.
Companies were already restarting some of the 421,350 barrels per day of oil output, about a quarter of Gulf of Mexico output, shut as a precaution.
(Additional reporting by Gene Ramos in New York, Joe Brock in London and Alejandro Barbajosa in Singapore)