New York's main contract, light sweet crude for November delivery, tumbled $US10.52, or 9.8 per cent, to close at $US96.37 a barrel. Earlier it had fallen as low as $US11.85.
In London, Brent North Sea crude for November dropped $US9.56 to settle at $US93.98 a barrel. Its intraday low was $US92.64.
New York oil prices accelerated their decline in late trade, as the market digested the ramifications of the House's rejection of the emergency Wall Street bailout.
The House of Representatives voted 228-205 to reject the emergency legislation.
A "disappointed'' Mr Bush has summoned top aides to plan the next steps, the White House said.
The oil market selloff was driven by worries that further economic turmoil in the world's largest economy could significantly dampen global oil demand.
Augustine Faucher at Economy.com said, "The US is looking at a severe recession if Congress fails to pass some sort of package.''
"Oil prices should remain under downward pressure,'' said James Williams, analyst at WTRG Economics.
"Oil traded for the last five years on fear of supply interruptions. It is now trading on fear of economic collapse,'' Mr Williams said.
John Kilduff at MF Global agreed. "Expectations for demand are ... in doubt with the expected future economic contraction,'' he said.
Sucden analyst Nimit Khamar said that oil prices slumped "amid heightened concerns over demand destruction.''
According to oil industry experts, demand destruction occurs when high oil prices gradually erode global energy demand over the long term -- and result in lower price levels.
Crude prices have dropped sharply from record high levels above $US147 in July as demand for energy shrank due to a US-led world economic slowdown.
Sucden's Mr Khamar said that "nervousness over the future of financial markets beyond the US was heightened following the nationalization of British mortgage lender Bradford & Bingley and Belgian-Dutch group Fortis.''
"This, combined with the deteriorating outlook for European economies, has further fueled concerns over the energy demand outlook,'' Mr Khamar said.
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