The Dow Industrial Average dropped 565 points earlier on Wednesday, but recovered slightly to the close 249 points down, at 15,766.7.
The S&P 500 lost 22 points, to 1,859, while the Nasdaq index fell 5 points to 4,471.69.
US crude oil fell below $27 a barrel, its lowest level since May 2003.
Brent Crude was down 2.1% at $28.16 a barrel.
The continued fall in oil sent energy stocks down. Exxon Mobil saw its shares drop 4% and Chevron fell 3%.
"The focus remains on oil and the impact of low oil prices, which points to slowing growth and possibly, even stagnant to negative growth here in the United States," said Peter Cardillo, chief market economist at First Standard Financial.
Official figures showed that consumer prices fell 0.1% in December, the fall being largely explained by the falling cost of energy.
US markets have had their worst start to a year as investors worry about growth in China, rising US interest rates and a plunge in the price of oil.
(Closes):US shares recovered slightly from heavy losses sustained earlier in the day, as the price of oil fell to 2003 levels.