Oil tumbles despite OPEC's record cut in production

WASHINGTON -- Oil prices plunged to the lowest level in 4½ years Wednesday as gloomy prospects for energy demand in the slumping world economy overshadowed a record cut in OPEC's production target.

The price of a barrel of light, sweet crude oil trading for delivery in January fell $3.54, or 8.1%, to $40.06, the lowest since July 2004. Oil prices are down more than $100 since peaking in July.

The decline Wednesday came even after the Organization of Petroleum Exporting Countries said it's cutting production 2.2 million barrels a day starting Jan. 1 in a bid to prop up prices. That is on top of the 2 million barrels the cartel pledged to cut in previous months and brings OPEC's daily production target to 24.8 million, the lowest in 4½ years.

OPEC said supply is exceeding demand. The cartel said prices threatened to get so low that it would no longer make sense to make investments to ensure enough supply in the long run.

OPEC President Chakib Khelil, Algeria's energy head, suggested the cartel could cut again before its next regularly scheduled meeting in March. "We are in a very, very deteriorating environment," he said at a news conference broadcast over the Internet.

But Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University, says further cuts might not work. Investors don't take OPEC's announcements seriously because members often produce more than promised, he says. More important, the economy is slipping too quickly for even OPEC to influence prices.

"The overall global economic challenges are such an overhang on this market right now that there's not a whole lot they can do to stimulate the market until we see the demand side pick up again," Bullock says.

OPEC's cut is "short-sighted," Energy Department press secretary Healy Baumgardner says.

The Energy Information Administration forecast U.S. oil consumption will fall through 2010.

In the USA, drivers are using less gasoline even though the price at the pump has plunged. Demand for gasoline in the four-week period ended Dec. 12 was down 3.5% from a year earlier, EIA said.