Oil prices fall below $65 despite OPEC's production cut; gas drops

VIENNA -- An OPEC attempt to stem the free-fall in oil prices fizzled Friday with crude futures dropping below $65 a barrel to lows last seen 15 months ago on world economic fears, despite the 13-member group's decision to slash production by a daily 1.5 million barrels.

Oil's steep plunge has sent the price of a gallon of gasoline below year-ago levels for the first time in 2008.

A gallon of regular gas fell 4 cents overnight to a new national average of $2.78, according to auto club AAA, the Oil Price Information Service and Wright Express. That's nearly a dollar less than what was paid last month and 4 cents below gas prices one year ago on Oct. 24.

Gas prices are off from their July peak by about a third compared with the price of crude, which has been more than halved.

There is a lag between the two prices as oil being traded now will not be delivered until next month. That oil must be refined, or turned into gasoline, and then shipped to filling stations.

Oil's imperviousness to production cutbacks — the most potent weapon in the OPEC arsenal — reflected the cartel's diminishing control over prices. And the language of an OPEC statement announcing the cut reflected how seriously it viewed the erosion of its revenues, as did the unusually short deliberations leading to the decision.

"Oil prices have witnessed a dramatic collapse — unprecedented in speed and magnitude," said the 13-nation organization. "This slowdown in demand is serving to exacerbate the situation in a market which has been oversupplied with crude for some time."

It also warned of further hard times ahead for suppliers, saying "the fall in demand will deepen" in the coming months.

In more orderly economic times, any Organization of Petroleum Exporting Countries move to reduce output led to an upward spike on fears that demand would outstrip supply. But Friday's oil market reaction reflected present realities; with the financial vortex sucking the U.S. and other major consumers into recession — and even China's and India's booming economies slowing — even less oil at lower prices will have trouble finding a buyer.