Brent futures dropped over $US2 to under $US64 a barrel as US President Donald Trump, who is on a Middle East tour, said he was getting very close to securing a deal with Iran - and that Tehran had "sort of" agreed to the terms.
Ali Shamkhani, an adviser to Iran's Supreme Leader Ayatollah Ali Khamenei, had said in an NBC interview that the country would commit to never making nuclear weapons and get rid of its stockpiles of highly-enriched uranium.
Iran is OPEC's third-largest producer. It pumps about three million barrels of oil a day, or about three per cent of total world output, but has been under strict sanctions since Trump quit the West's previous nuclear accord with Tehran in 2015.
It was not just Brent that was affected. Europe's oil and gas stocks toppled back nearly two per cent, while government bonds of rival producers from Angola to Nigeria also took a hit.
The dive in crude nudged both the dollar and benchmark government bond yields down.
Official figures showed Britain's economy grew by a better-than-expected 0.2 per cent in March.
Traders are also awaiting euro zone flash GDP figures for Q1 and key US data including April retail sales and jobless figures.
Germany's 10-year yield, the euro area's benchmark, was down one basis point to 2.68 per cent, but remained close to a multi-week high of 2.7 per cent hit on Wednesday.
US Treasury yields were also sitting at a one-month top of just above 4.5 per cent, in part due to worries over Trump's budget package that would add trillions of dollars to the US debt.
Investors were greeted with a plethora of good news earlier this week from a US-China trade-war truce to a raft of headline-grabbing investment deals from the Middle East during Trump's Gulf tour, in moves that breathed new life into battered global stocks.
But most of the optimism had died down by Thursday, leaving MSCI's broadest index of Asia-Pacific shares outside Japan down 0.15 per cent and Wall Street futures 0.5 per cent weaker after a near 30 per cent rebound in the Nasdaq since early April's trough.
While the trade deal between the US and China gave markets reason to cheer, the absence of clarity over Trump's trade policies has left markets with a sense of lingering uncertainty over the global economic outlook.
Traders were also awaiting Thursday's data on US retail sales and earnings from Walmart, a bellwether for the US retail industry, for a check on the pulse of consumer sentiment.
A disappointing outcome could feed fears of a recession in the world's largest economy, which would be a drag on markets.
Federal Reserve chair Jerome Powell is also scheduled to speak later in the day, where the focus will be on any clues regarding the outlook for US rates.
In currencies, the dollar was struggling to extend its strong gains made at the start of the week, falling 0.7 per cent against the yen to 145.75.
The euro rose 0.3 per cent to $US1.12.
The Aussie dollar also jumped overnight after data showed Australian employment blew past expectations. It was last at $US0.6432.
Spot gold regained its footing in Europe, although it was still 0.6 per cent lower on the day at $US3,159 an ounce.
