U.S. crude dipped below the $40 threshold following weekly data that showed U.S. energy firms added two oil drilling rigs last week, the fifth increase in a row. The rise in the number of rigs emerging after a second quarter lull in prices is adding to concerns U.S. shale production is proving slow to respond to falling prices, prolonging a global glut. [RIG/U]

"Everyone is still looking at it saying 'Wow, you still don't have production coming down,'" said Tariq Zahir, founder at Tyche Capital in Laurel Hollow, New York.

U.S. October crude settled 87 cents, or 2.1 percent, lower at $40.45 a barrel, having touched a new 6-1/2-year low of $39.86 a barrel. Front-month U.S. crude has fallen 33 percent over eight consecutive weeks of losses, the longest such losing streak since 1986.

It pared some losses late in the trading session, as U.S. RBOB gasoline futures rebounded from a contract low, on news of a fire in a gasoline-making unit at PBF Energy Inc's 182,000 barrels per day Delaware City, Delaware, refinery.

Brent oil ended $1.16, or 2.5 percent, lower at $45.46 a barrel. It hit a low of $45.07 and threatened to break below $45 a barrel for the first time since March 2009.