A dismal demand forecast by the International Energy Agency further discouraged a recovery in crude prices.
Investors balked Tuesday at Treasury Secretary Timothy Geithner's plan to restore confidence to credit markets with more than $1 trillion in public and private support to the financial system, saying the package lacked key specifics.
"Geithner's 'plan' was long on rhetoric, short on substance," said energy analyst Stephen Schork in his Wednesday report. "The market reacted accordingly."
The plan calls for a government-private sector partnership to help remove banks' soured assets from their books and unclog the credit markets that govern loans to consumers and businesses. The Dow Jones industrial average tumbled 4.6 percent Tuesday and Asian stock markets fell Wednesday.
"Oil is following the stock market," said Clarence Chu, a trader at market maker Hudson Capital Energy in Singapore. "Oil could fall further if there's more really bad economic news, but I don't think it will go below $30."
Oil had been trading near $40 for about two weeks, underpinned by OPEC production cuts. The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global crude supply, said earlier this week it has completed about 80 percent of 4.2 million barrels per day of output cuts announced since September.
"OPEC is following through, and that's supporting prices," Chu said.
Some crude investors have taken heart from the fact that oil prices have not retested five-year lows of $33 a barrel, hit in December, despite an avalanche of dismal economic and corporate news in the last month.
"Even with the bad news so far, the oil market isn't tanking," Chu said. "It's a signal we could be at a bottom."
Chu said he expects oil to trade between $30 and $50 a barrel in the first half before rising above $50 in the second as demand recovers.
Despite some analyst optimism, the International Energy Agency lowered its estimate for global oil demand in 2009 by 570,000 barrels to 84.7 million barrels per day because of the worsening economic downturn. The lowered forecast came after the International Monetary Fund predicted the world economy to grow by only 0.5 percent.
In other Nymex trading, gasoline futures rose 3 cents to $1.27 a gallon. Heating oil gained 1 cent to $1.31 a gallon, while natural gas for March delivery was steady at $4.54 per 1,000 cubic feet.