Crude in London tumbled below $40 a barrel for the first time since late June in the wake of faltering demand and weaker equities dampening market sentiment.The demand environment is only going to get worse here, says John Kilduff, a partner at Again Capital LLC.Coupled with concerns over the pick-up in Chinese demand, tensions are rising between the US and the world's largest importer.

Crude in London tumbled below $40 a barrel for the first time since late June in the wake of faltering demand and weaker equities dampening market sentiment.

Brent futures tumbled as much as 5.3% to $39.77 a barrel on Tuesday. The combination of a stalling Asian demand recovery, the end of the U.S. summer driving season and increased supply from the OPEC+ alliance are signaling a bleak short-term outlook for oil prices.

Equity markets also weakened, leading crude to break the key psychological barrier of $40 a barrel. The Nasdaq 100's three-day slide topped 10% after its surge from March lows stretched valuations toward levels last seen in the dot-com era.

The demand environment is "only going to get worse here," said John Kilduff, a partner at Again Capital LLC. With the "pronounced rally in the dollar" and "the significant sell-off in the stock market, we're getting dragged down with that too. There's a big risk-off sentiment as the summer holiday ends here."

Meanwhile, only four of 10 Asian refiners surveyed by Bloomberg said they would be trying to buy more Saudi Arabian crude after the kingdom cut pricing for October as consumption remained below pre-coronavirus levels. Abu Dhabi National Oil Co. also cut prices on Tuesday, the latest response to a sluggish demand backdrop in the world's biggest oil-consuming region.

Coupled with concerns over the pick-up in Chinese demand, tensions are rising between the US and the world's largest importer. President Donald Trump said that he intends to curb the US economic relationship with China, threatening to punish any American companies that create jobs overseas and forbid those that do business in China from winning federal contracts.

A widening contango in both Brent and WTI, combined with a slump in tanker rates, may also be starting to incentivise floating storage. Storing crude at sea has become profitable again for northwest Europe and the Mediterranean, shipbroker and exchange data compiled by Bloomberg.