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West Texas Intermediate closed below $US30 a barrel, around a 12-year low.
The lifting of sanctions against Iran over the weekend only adds to the fear of oversupply.
Most global markets, including the US, UK, Europe and Canada, dropped by over 2% each.
Materials dropped nearly 5% in London, with Anglo American down by 11.5%, and BHP Billiton, Antofagasta and Glencore each down by around 6%.
It sets the ASX up for a steep loss on opening, with the SPI 200 Futures index down 87 points.
The Australian dollar fell to 68.37c.
Base metals were lower, with copper, nickel and zinc losing more than 2% each.
Gold was a bright spot, rising by 1.6% to $1090.70 an ounce, though Patersons Securities economist Tony Farnham described the safe haven buying as “brave”.
It equates to a local spot price of $A1590/oz, thanks to the drop in the dollar.
Iron ore was another positive, rising by 2.2% to $US41.12 per tonne.
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