Data from the U.S. Energy Information Administration (EIA) showing U.S. crude oil inventories, excluding strategic reserves, at their highest level since July 1990 helped accelerate the sell-off.
U.S. crude oil stocks posted their largest 10-week build since May 2001, the official figures showed.
Brent crude futures for July delivery fell $1.80 per barrel to a low of $101.67, before recovering a little to trade around $101.90 by 1515 GMT. Prices were on track for the biggest monthly loss since 2010, after slipping 3 percent on Thursday.
U.S. crude for July delivery was down $1.30 at $86.52 per barrel.
Oil prices came under pressure after U.S. first-quarter GDP growth was revised down to 1.9 per cent from last month's 2.2 per cent estimate.
Stock markets, commodities and the euro all came under heavy pressure, while U.S. Treasuries and German bonds rose in what investors described as a general flight to safety.
Investors were dismayed by a slew of bearish U.S. data, including readings on the labour market and manufacturing in the Midwest that pointed to a slowdown in the recovery.
U.S. jobless claims rose for a fourth straight week, and the Chicago purchasing management index came for May missed the consensus forecast.
Analysts and traders said a sell-off had been expected for some time given the poor outlook for demand.
"The market is in a state of flux right now, driven by currencies and safe-haven flights," said Ole Hansen, head of commodity strategy at Saxo Bank, noting U.S. crude had fallen 20 per cent from its peak and was officially in a bear market.
Hansen pointed to the poor economic performance data out of India, which has been one of the growth engines for energy consumption. India's annual economic growth slumped in the first quarter to a nine-year low of 5.3 percent as the manufacturing sector shrank.
The crisis in the euro zone also continued to dominate market sentiment. "Markets have been fairly tight, but it's all these euro zone worries that have really spooked the oil markets," said Rob Montefusco, a trader at Sucden Financial.
"Everyone hoped there would be some sort of solution, but it has just got worse and worse. There is no reason for oil to push back up to the heights we had before, given that we're definitely expecting a slowdown."
Mario Draghi, president of the European Central Bank, warned on Thursday the ECB could not fill the vacuum created by the lack of action by national governments.
Spain's centre-right government has so far failed to spell out how it plans to finance a 23.5 billion euro ($29 billion) rescue of Bankia, the country's fourth-biggest lender.
This is unnerving markets and has driven the country's borrowing costs to levels at which Ireland and Portugal previously sought international bailouts.
Copyright @Thomson Reuters 2012