Brent crude for July delivery dropped by as much as $1.20 to an intraday low of $98.73 a barrel by 0050 GMT (7:50 p.m EDT), adding to a 71-cent loss from the previous session.
U.S. crude prices fell $1.58 to $83.24 a barrel.
Federal Reserve Chairman Ben Bernanke said on Thursday the U.S. central bank was ready to shield the economy if financial troubles mount but offered few hints that further monetary stimulus was imminent.
His testimony to Congress offered little encouragement to investors who were hoping the Fed would launch a third round of bond buys, or quantitative easing.
The disappointing comments offset support from a surprise interest rate cut by China, the first since the global financial crisis.
The steps taken by China, the world's No. 2 oil consumer, come amid a darkening outlook for the world economy, driven by the unfolding euro zone debt crisis.
Spain's credit rating was slashed by three notches by Fitch, which signaled it could make further cuts as the cost of restructuring the country's troubled banking system spiraled and Greece remains in political turmoil.
Troubles in the euro zone has helped offset support from tensions between the West and Iran, OPEC's second largest oil producer, which had helped push Brent prices to a record high $128 a barrel in March.
The United States is expected to announce a new list of countries that will receive exemptions to financial sanctions on oil trade with Iran as soon as early next week, a government official said on Thursday.
Crude prices, however, may see support from the first drop in U.S. crude stocks in 11 weeks. Domestic crude inventories fell 111,000 barrels to 384.63 million barrels in the week to June 1, the U.S. Energy Information Administration said on Thursday.
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