U.S. benchmark West Texas Intermediate initially tumbled more than 3 per cent but then pulled back some ground to trade 1.5 per cent lower, at US$22 a barrel.
US gasoline futures fell more than 20 per cent to $0.4789 a gallon, the lowest on record.
Citing Wall Street Journal reports that the United States was considering intervening in the ongoing Saudi-Russian price war and Texas regulators may curb oil output, the US investment bank said such action would reduce global and USA domestic supplies.
The U.S. administration has appointed a special energy representative to Saudi Arabia, Victoria Coates, as part of a diplomatic push to stabilise energy markets, hammered by a price war between Saudi Arabia and Russian Federation.More news: Pompeo: Iranian officials stole more than $1 billion in coronavirus assistance
The Energy Department official will work closely with U.S State Department officials in Riyadh and an existing energy attache for months at the least, the officials said on condition of anonymity and on not being quoted directly.
Goldman Sachs estimated the demand loss could total 8 million bpd.
Oil demand this year will fall 2.8 million bpd, the largest single-year drop in almost 40 years, Morningstar analysts projected.
Refining margins for gasoline and jet fuel have tanked because of decreased demand for transportation fuels, as the pandemic has forced businesses to close and governments to push residents to avoid travel and public places.More news: Sen. Klobuchar Announces Her Husband Has Coronavirus
The six-month spread of Brent futures hit its steepest since 2009 at a discount of around $9, a contango structure which reflects the current oversupply.
Oil prices have fallen for four straight weeks and have given up about 60% since the start of the year.
Many oil firms have rushed to reduce spending and some producers have already begun putting employees on leave. The price war is a "lose-lose strategy" for the Saudis and Russian Federation, analysts at MUFG Bank Ltd. said in a note, with the fiscal and revenue outlook for both countries challenging if crude holds below $40 for a protracted period.More news: New Zealand: Can't Rule Out Community Transmission in 2 New Virus Cases