Oil hovers near 4 1/2-year low despite OPEC cut

[December 18, 2008]  DETROIT (AP) -- Oil prices hovered near 4 1/2-year lows Thursday as persistent investor pessimism over global crude demand outweighed the news of OPEC's largest-ever production cut.

Light, sweet crude for January delivery edged up 47 cents to $40.53 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe. Earlier, it fell as low as $39.19 -- a level not seen since at least July 2004.

Overnight, the contract fell $3.54 to settle at $40.06 a barrel, after touching $39.88.

The Nymex contract for February delivery, which analysts said better reflected oil price trends, was up 82 cents to $45.43 a barrel.

"WTI for January expires tomorrow and ... the expiring contract can go anywhere," said Olivier Jakob of Petromatrix in Switzerland, referring to West Texas Intermediate, the type of crude oil used for the Nymex contracts.

"As a world benchmark, January WTI needs to be ignored and the focus kept rather either on February WTI or February Brent," Jakob said.

In London, February Brent crude rose 75 cents to $46.28 a barrel on the ICE Futures exchange.

The 13-nation Organization of Petroleum Exporting Countries, which accounts for about 40 of global oil supply, said Wednesday 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 3 million cut next time."

OPEC's next official meeting is scheduled for March. The group had already announced cuts totaling 2 million barrels earlier this year, also with little effect. The 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 percent since July. What started as a crisis in the U.S. sub-prime mortgage sector last year has mushroomed into a recession in most developed countries and a sharp downturn in emerging nations.

Companies across the world are laying off workers and banks are reluctant to lend. Plunging property values and high debt levels have led many consumers to pull back spending.

"I'm worried about growth," McGuire said. "You have to get people spending."

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

U.S. crude inventories rose slightly last week and gasoline reserves increased as demand stayed below year-ago levels, according to government data released Wednesday.

Analysts had expected crude stocks to fall 900,000 barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

In other Nymex trading, gasoline futures were up 3.25 cents to $1.0380 a gallon. Heating oil was up 4.1 cents at $1.4835 a gallon while natural gas for January delivery fell 0.5 cent to $5.614 per 1,000 cubic feet.

[Associated Press; By PABLO GORONDI]

Associated Press writer Alex Kennedy in Singapore contributed to this report.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.