Oil resumes slump, dipping as low as $80.01

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Oil prices resumed their slump on Wednesday
after a brief bounce from four-year lows failed to gain traction, with U.S. crude hitting a low of $80.01 a barrel as equity markets tumble and economic gloom spreads.

A sharp fall in the U.S. dollar lent modest support to oil prices early in the day, but the mood turned bearish again by mid-afternoon as traders saw little end in sight for oil's deepest rout in three years.

European benchmark Brent has fallen 28 percent since June as OPEC's most influential members see little need to shore up markets by cutting output.

Brent crude for November delivery, which expires on Thursday, fell $1.03 to $84.01 a barrel by 1:45 p.m. EDT (1545 GMT), after trading earlier as low as $83.37 a barrel, its weakest since 2010. It fell nearly $4 on Tuesday, the biggest drop in three years.

U.S. crude fell $1 or 1.2 percent to $81.96 a barrel. Buyers cautiously returned to the market early in the day after the contract hit $80.01, a symbolically important level in a market that has crashed through most lines of major support, but the bounce proved fleeting.

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"When the market comes off a day like yesterday, it's going to have rallies back up. It's not a straight line down," said Joseph Posillico, a senior vice president of energy derivatives with Jefferies Bache. "The trends are still down, and I think it's possible that we have a new range between $70 and $80."

Oil was also whipsawed by gyrations in outside markets, with U.S. stocks falling almost 3 percent and Treasury bills rising 1.5 percent after data showed producer prices fell for the first time in more than a year and retail sales fell.
Read MoreCheap oil is here to stay, at least for a few months

The dollar index fell almost 1 percent, reversing part of a near 10 percent rally since May that has weighed on commodities.
Options and Deltas
The accelerating rout has spurred a surge in options buying this week as oil producers seek insurance against a deeper tumble. The CBOE's oil VIX index has spiked to its highest since mid-2012.
Meanwhile some Wall Street banks have been racing to neutralise exposure to big oil option trades, adding pressure to spiralling prices.