Oil prices hit new low despite supply cut

Oil prices fell to four-and-a-half year lows today as investor pessimism over global crude demand outweighed the largest-ever production cut by oil producing cartel Opec.

Light, sweet crude for January delivery was down 15 cents to $39.91 a barrel in electronic trading on the New York Mercantile Exchange in Singapore this morning.

At one point, it fell as low as $39.19 dollars – a level not seen since at least July 2004.

The 13-nation Organisation of Petroleum Exporting Countries, which accounts for about 40% of global oil supply, said yesterday it planned to reduce its output quotas by 2.2 million barrels a day.

But markets had already expected a vastly reduced flow of oil and traders focused instead on troubling economic data that points to a long and severe global economic slump.

“The market apparently had already priced in this cut,” said Peter McGuire, managing director at investment firm Commodity Warrants Australia in Sydney.

“I think Opec will have to have another meeting in January, and I wouldn’t be surprised to see possibly a three million cut next time.”

Opec’s unprecedented production cuts and the market reaction show just how fast energy demand has fallen during the worst economic downturn in at least a generation.

Oil prices have tumbled 73% since July. What started as a crisis in the US sub-prime mortgage sector last year has mushroomed into a recession in most developed countries and a sharp downturn in emerging nations.

Oil prices may fall as low as $35 a barrel during the next few weeks, Mr McGuire said.