Oil prices tumbled to new four-year lows Wednesday despite OPEC's announcement of a record 2.2 billion-barrel crude production cut from OPEC, with markets already pricing in a vastly reduced flow of oil.
Light, sweet crude for January delivery fell more than 5 percent, or $2.21, to $41.39 on the New York Mercantile Exchange. Benchmark crude prices fell as low as $40.20, a price last seen in the summer of 2004.
U.S. gasoline inventories continued to rise, the government reported, providing further evidence of a major pullback by American motorists.
Demand for gasoline over the four weeks ended Dec. 12 was 2.7 percent lower than a year earlier.
OPEC 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.
"You've got a commodity that people are buying less of because they can't afford to buy more," said Phil Flynn, an analyst at Alaron Trading Corp. "People are fearful. They have a lack of confidence in the economy. They're closing their factories."
Grim economic news radiates out of the U.S., Europe and Asia almost daily as consumers and industries pull back on spending.
The Cooper Tire and Rubber Co. said Wednesday it will cut 1,300 jobs and close a plant in Georgia.
Newell Rubbermaid Inc. is reducing its salaried work force by as much as 10 percent. The Atlanta-based company slashed its fourth-quarter and full-year profit guidance Wednesday.
In Detroit, General Motors Corp. put the brakes on construction of an engine factory trying to hold on to the cash that it has left.
Meanwhile, the dollar sank to a 2-month low against the euro and a 13-year low versus the yen a day after the Federal Reserve cut a key lending rate target to historic lows.
The 15-nation euro surged to $1.4412 in New York morning trading, up from $1.3976 late Tuesday in New York. The euro earlier peaked at $1.44371, its highest point since September.
Many analysts believe oil prices will continue falling next year with agencies ranging from the U.S. Department of Energy to the International Energy Agency forecasting weak demand.
IHS Global Insight Chief Economist Nariman Behravesh was among the industry experts forecasting lower prices for oil.
"Oil prices will (easily) fall below $40 per barrel in the next year, and could tumble all the way to $30," Behravesh said in a research note. "With the economic outlook deteriorating by the day, futures markets for commodities have not priced in the full extent of the 'demand destruction' taking place."
Doubts also remain about the willingness of some OPEC members to adhere to price-boosting production quotas.
"OPEC has lacked credibility for a long time on discipline," said Gerard Rigby, energy analyst at Fuel First Consulting in Sydney. "OPEC is going to have to show they are committed to the cut, that it's not just talk."
U.S. crude inventories rose slightly last week despite expectations for a drop, while gasoline reserves increased as demand stayed below year-ago levels, according to government data released Wednesday.
Analysts had expected a drop of 900,000 barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.
In London, February Brent crude rose $2.13 to $46.69 a barrel on the ICE Futures exchange.
In other Nymex trading, gasoline futures rose less than a penny to $1.0412 a gallon. Heating oil also rose less than a penny to $1.465 a gallon while natural gas for January delivery fell 23 cents to $5.521 per 1,000 cubic feet.