Expectations of further buildups in U.S. stocks also kept a low ceiling on prices.
After dipping as low as $36.63, light, sweet crude for February delivery recovered slightly but was still down $1.87 at $37.11 a barrel by afternoon in Europe in electronic trading on the New York Mercantile Exchange. The contract fell 93 cents overnight to settle at $38.98.
A steady stream of dismal U.S. economic and corporate data during the past few months has hammered investor confidence and sent oil prices reeling 74 percent since July.
More bad news emerged Wednesday with consumer spending falling for a fifth straight month in November, the longest weak stretch in a half-century, while incomes declined under the weight of massive job layoffs.
Separately, new claims for unemployment benefits rose more than expected last week, as layoffs spread throughout the economy, more evidence the labor market is weakening as the recession deepens. The Labor Department reported that initial requests for jobless benefits rose to a seasonally adjusted 586,000 in the week ending Dec. 20, from an upwardly revised figure of 556,000 the previous week. That's much more than the 560,000 economists had expected.
Additionally, orders to U.S. factories for big-ticket manufactured goods fell again in November, reflecting further setbacks in the battered auto industry and a big drop in demand for commercial aircraft.
The Commerce Department said that the gross domestic product, the broadest measure of economic health, declined at an annual rate of 0.5 percent in the July-September quarter.
Some economists believe the U.S. economy's decline in the October-December period could be as large as 6 percent. If so, that would be the worst quarterly drop since 1982.
Investors will be watching for more evidence of slowing U.S. demand in the weekly oil inventories report to be released Wednesday by the U.S. Energy Department's Energy Information Administration.
The report is expected to show that oil stocks rose 1.5 million barrels last week, according to the average of estimates in a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
The Platts survey also projects that gasoline inventories increased 900,000 barrels and distillates gained 1.4 million barrels last week.
Traders have so far brushed off attempts by OPEC to boost prices through production cuts. The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global supply, said last week it would slash production by 2.2 million barrels a day, its largest cutback ever, adding to a 1.5 million output quotas reduction in November.
The fall of benchmark crude on the Nymex has been paralleled by steep declines in Brent futures traded on London's ICE exchange.
Trader and analyst Stephen Schork noted that Brent crude has dropped "in 79 of the last 123 sessions ... by a total of $108.05 a barrel" - a 73 percentage point loss.
On Wednesday, February Brent crude slumped by $2.36 to $38.00 a barrel on the ICE Futures exchange.
In other Nymex trading, gasoline futures slipped by nearly 4 cents to 82 cents a gallon. Heating oil was down by more than 5 cents at $1.27 a gallon while natural gas for January delivery lost nearly 16 cents to fetch $5.58 per 1,000 cubic feet.