What is the Biblical basis for saying that God can annihilate human souls? We know that God is love and He is merciful. However, the idea of eternal torment seems too horrifying and doesn't seem to be in parallel with the nature of God. 

My argument is that, if God were capable of annihilating the soul, He would have done it long ago. Annihilating Adam and Eve would stop all these countless people going to Hell. It is not just at all if God allowed only a few to enter Heaven and the majority suffer eternal torment. Why can't God simply make us all vanish? Maybe because God is not able to! Perhaps this is the reason why God had to sacrifice His one and only Son for us, who was flogged, tortured, mocked, crucified and died, only with the hope of saving some souls.

Moreover, the idea of annihilation seems appealing as it gives hope to the unsaved souls. However, I still have trouble with this theology because I can't find any reference from the Bible that God can annihilate the soul.

According to Annihilationism, what is the Biblical basis that God can annihilate the soul? Which verses do they use and what is their interpretation?
First, the idea of the immortality of the soul comes from the Greek dualistic view of body and soul as separate, with a mortal body and an immortal soul.
Immortality belongs to God alone (I Tim. 6:16) in the sense of before creation and on to eternity.
God offers eternal life (John 3:15–16; 10:28; 17:2; Rom. 2:7; 6:23; 1 Cor. 15:42f; 50, 54; Gal. 6:8; 1 John 5:11).
Many will not be saved - look at Mt 7:13-14
“Enter through the narrow gate; for the gate is wide and the way is broad that leads to destruction, and there are many who enter through it. For the gate is small and the way is narrow that leads to life, and there are few who find it.
The &quot;great white throne judgment&quot; in Rev 20:11-15 tells about the second death.

11 Then I saw a great white throne and Him who sat upon it,
from whose presence earth and heaven fled away, and no place was found
for them. 12 And I saw the dead, the great and the small, standing before
the throne, and books were opened; and another book was opened, which is
the book of life; and the dead were judged from the things which were
written in the books, according to their deeds. 13 And the sea gave up
the dead which were in it, and death and Hades gave up the dead which
were in them; and they were judged, every one of them according to
their deeds. 14 Then death and Hades were thrown into the lake of fire.
This is the second death, the lake of fire. 15 And
if anyone’s name was not found written in the book of life,
he was thrown into the lake of fire.

Calling this the second death is a strong indication that the unsaved do not have an eternal existence of eternal torture.
The Old Testament speaks of destruction as the &quot;reward for wickedness&quot;
(look here for a more complete treatment).
The New Testament gives many pictures of destruction.
Look at James 4:12

12 There is only one Lawgiver and Judge, the One who is able to save and to destroy;
but who are you who judge your neighbor?

Here it seems like salvation or destruction are the only options.
Here are a few scriptures that speak of destruction

Psalm 1:6 ... but the way of the ungodly shall perish
Psalm 37:20   But the wicked shall perish... they shall consume; into smoke shall they consume away.
Psalm 92:7    ... shall be destroyed forever
Matthew 10:28b    Rather, fear him which is able to destroy both soul and body in hell.
John 3:16 ... whosoever believeth in him should not perish (Greek: destroyed)
Romans 6:23   For the wages of sin is death …
Philippians 3:19  whose end is &quot;destruction&quot;
2 Thessalonians 1:9   who shall be punished with everlasting destruction ...
Hebrews 10:39 But we are not of them who draw back unto perdition (Greek: destruction); but of them that believe to the saving of the soul.
James 4:12a   There is one lawgiver, who is able to save and to destroy.
Revelation 20:14  This is the second death...

Greg Boyd has put together a list of scriptures here.
A good book on the subject is
E.W. Fudge &amp; R.A. Peterson, &quot;Two views of Hell: A Biblical and Theological Dialog,&quot; Inter Varsity Press, (2000)
In this book we read . . .

&quot;The fact is that the Bible does not teach the traditional view of final punishment. Scripture nowhere suggests that God is an eternal torturer. It never says the damned will writhe in ceaseless torment or that the glories of heaven will forever be blighted by the screams from hell. The idea of conscious everlasting torment was a grievous mistake, a horrible error, a gross slander against the heavenly Father, whose character we truly see in the life of Jesus of Nazareth.&quot; (p. 21)