Oil extended its losses to below $40 a barrel today, near its lowest in more than four years, as rising US crude inventories and further evidence of slowing demand trumped OPEC's biggest ever production cut.
Oil has nose-dived since its July all-time peak above $147, shedding almost three quarters of its value as the global financial turmoil cuts into fuel demand. Top forecasters are now predicting the first decline in world energy use since 1983.
US light crude for January delivery, which expires tomorrow, fell 42 cents to $39.64 a barrel by 5.59am, after falling to $39.19 earlier in the session, the lowest since July 2004, and following an 8-percent overnight drop.
London Brent crude for February shed 43 cents to $45.10.
JPMorgan cut its 2009 crude oil forecast to $43 a barrel from a previous $69 a barrel expectation following OPEC's cut.
The Organization of the Petroleum Exporting Countries, eager to build a floor under dipping prices, announced yesterday it would cut 2.2 million barrels daily of output starting Jan. 1, slightly more than expected.
It comes on the heels of 2 million barrels a day (bpd) of cuts since September, but instead of boosting oil prices, it deepened the gloom over demand.
According to independent observers cited in OPEC's monthly report on Tuesday, the group's compliance in November to existing cuts was only just over 50 per cent.
A prolonged period of cheap prices could slow new investment, crimping supply, a stark turnaround just months after worries that high prices were eating into demand.
Oil below $50 is uncomfortable for all producing nations, but especially for OPEC members Venezuela and Iran, which are dependent on higher prices to fund ambitious domestic programmes.
Traders also took their cue from U.S. crude oil and refined fuel stocks, which rose last week as imports of oil products increased, while domestic refiners curbed output rates in the light of soft demand.
Commercial crude oil stocks in the United States were up 500,000 barrels to 321.2 million, the Energy Information Administration said.
It also said oil demand in the world's top consumer was expected to grow by only 1 million bpd, or 0.2 per cent, over the next two decades, as higher vehicle fuel standards and increased use of renewable fuels stifle petroleum consumption.
Reuters