The 5% slide since Monday reflects a new five-year low for the price of Brent crude and heightened worries over the outlook for the global economy, particularly after more disappointing economic figures from China.
With the FTSE 100 down by more than 1% today, London’s benchmark index is on track to suffer its worst weekly drop in more than two years. It is at its lowest level since the end of October.
Oil stocks have taken a battering as weakening demand and the prospect of oversupply triggered a fall in the price of oil by more than 8% this week to below 64 US dollars (£40.70) a barrel. Today, the International Energy Agency cut its forecast for global demand for the fourth time in five months.
BP shares, which account for a slice of many UK pension funds, have fallen by 6% since Monday and are 15% cheaper in the year to date.
Political uncertainty in Greece is also playing its part in the sell-off after the governing coalition admitted yesterday they were still short of the support needed to stop the government collapsing in a parliamentary vote this month.
Demand for mining stocks has also been weakened by the outlook in China, with the world’s second largest economy today reporting a decline in growth in industrial output.
The FTSE 100 has a far greater weighting to the energy and commodity sector, meaning it has taken a bigger hit from the oil price weakness.
It has had a topsy-turvy spell over recent months, topping the 6900 mark and nearing record levels in September, before slumping to 6100 in October amid fears over the eurozone and slowing growth in China.
The top flight bounced back to nearly 6800 last month as hopes grew that fresh monetary stimulus would be deployed to boost Europe’s prospects. But today’s tumble has seen the index drop below 6400.
Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said: “The fall in the oil price and whether it reflects slowing global economic growth remains front and centre for investors.
“Despite historically favourable year-end trends for markets, investors are clearly nervous, with some moving to take profits.”