Brent crude fell 4.7%, hitting fresh 11-year lows, while US crude was down 3.9% at its lowest level since 2008.
Brent recovered to $33.95, down less than 1% on the day, while US crude climbed back to $33.42, down 1.6%.
Oversupply has hit oil prices, which are now 70% lower than in June 2014.
Companies and governments that rely heavily on oil revenues have been suffering as a result.
Adding to the continuing fall in oil prices, China depreciated the yuan on Thursday, sending regional currencies and stock markets tumbling.
Demand for crude tends to fall when the US dollar is stronger against currencies of purchasing countries, and China remains the world's biggest energy consumer.
China's stock markets were suspended less than half an hour into trading on Thursday, after falling 7% and triggering a new circuit-breaking mechanism for the second time this week.
Overnight, the US Department of Energy's weekly report showed a sharp drop in US commercial crude inventories of 5.1 million barrels to 482.3 million.
The government data also showed a gain in US crude production of 17,000 barrels a day, taking it to 9.22 million barrels a day, the fourth consecutive week of increases. There was also a rise in stockpiles at the Cushing oil hub in Oklahoma.
Oil is so oversupplied globally that countries are running out of storage.
The US, which is thought to have among the largest storage facilities in the world, has nowhere left to keep it, according to Paul Stevens, professor emeritus at the University of Dundee and a Middle East specialist.
"Storage is pretty much full and people are already talking about buying tankers as floating storage," he said.
"But if supply continues to outstrip demand, then the only thing that you can do with the oil is sell it, which inevitably pushes the price down."
The huge storage overhang means that even if US production falls this year, as oil companies halt production, it will take several months to get rid of excess supplies.
The oil price tumbled to $32.62 a barrel on Thursday morning as a result of rising US energy stockpiles and China's weakening currency, before recovering later in the day.