A 1.5 million barrel a day production cut by decided by OPEC member countries failed to stop oil prices falling, as fears of a deep global recession durably shake up investor confidence.
Oil dropped more than $4 a barrel on Friday as gloom about a global economic downturn sapping fuel demand took the steam out of an OPEC agreement to cut output.
Ministers of the Organization of the Petroleum Exporting Countries agreed at an emergency meeting in Vienna to take 1.5 million barrels a day of crude, about 5 percent of its supply, off the world market.
U.S. light crude for December delivery traded down $4.20 at $63.64 a barrel by 2:05 p.m. EDT (1805 GMT). It fell as low as $62.65, its lowest since May 2007.
It has fallen more than $40 a barrel in a month.
London Brent crude was down $4.40 at $61.52.
Saudia Arabia's Oil Minister Ali al-Naimi said the group had agreed the output reduction with effect from Nov.1.
Traders said OPEC's action might not be enough to arrest a slide that has seen oil down more than 50 percent from a record $147 a barrel in July.
"Already we've seen demand destruction of 2 million barrels per day. I'm not convinced this cut will be enough to stop the slide," said Rob Laughlin, at broker MF Global.
The U.S. Energy Information Administration said this week that oil products demand in the world's biggest energy consumer during the previous four weeks was 18.7 million barrels per day, down 8.5 percent from a year ago.
Oil has plunged as the credit crisis hits economic growth and fuel demand in the United States and other industrial countries.
"We believe this week will mark the start of a new quota reduction cycle by OPEC and it will continue through 2009," Deutsche Bank analyst Michael Lewis said in a note.
"However, we believe production cuts will not rescue the oil price," he said. "We target WTI (U.S.) crude oil prices hitting $50 a barrel next year."
The International Energy Agency, which advises industrialized consumer countries, was critical of OPEC's cut.
"It's not a helpful decision because markets are quite nervous," Eduardo Lopez, senior analyst at the IEA's oil market division said.
Investors across financial markets are pessimistic about the world economy, illustrated by sharp falls in global stocks on Friday, led by the lowest close in European shares in five and a half years.
"OPEC actions notwithstanding, the market is clearly being influenced more by the apocalyptic psychology currently pervading all markets," said Mike Fitzpatrick, vice president at MF Global in New York.
Even gold, a traditional safe haven, fell nearly 5 percent at one stage, pressured by a surge in the U.S. dollar as investors moved into cash.
Date created : 2008-10-25