* OPEC cuts 2.2 million bpd of crude output
* Dealers say record cut not enough to offset demand slide
(Adds details)
By Richard Valdmanis
NEW YORK, Dec 17 (Reuters) - Oil prices dropped 3 percent
on Wednesday after OPEC announced a record supply cut that
dealers said may fail to offset slumping world energy demand.
U.S. crude oil prices <CLc1> fell $1.40 to $42.20 a barrel
by 1:35 p.m. EST (1835 GMT), after dipping to a more than four
year low of $40.20 earlier in the trading session. London Brent
<LCOc1> rose 66 cents to $47.31 per barrel.
Oil prices have fallen more than $100 since July as a
global financial crisis cuts into consumer and industrial fuel
demand, and top forecasters are now predicting the first
decline in world energy use since 1983.
The Organization of the Petroleum Exporting Countries,
eager to push prices back up, announced on Wednesday an
agreement to cut 2.2 million barrels per day of output starting
Jan. 1, the biggest single reduction on record.
The agreed cut was slightly higher than expected and will
add to previous OPEC deals to cut 2 million bpd since September
[]. But oil traders focusing on the global economic
downturn reacted coolly.
"It seems like, despite the fact that the economies of
producer nations are clearly in trouble, they don't have the
temerity to actually go ahead and do the kind of cut that would
be really interesting to traders to turn this around," said
Addison Armstrong, director of market research at Tradition
Energy in Stamford, Connecticut.
Some traders had also hoped oil producing countries that
are not part of OPEC might have weighed in. But neither Russia
nor Mexico, which have cooperated with OPEC production cuts in
the past, offered to reduce output.
The White House called OPEC's decision to cut production
"short-sighted" and said the oil cartel has an obligation to
keep the market well-supplied.
"It's not clear that OPEC's actions will be effective given
the shift in global demand and the ability of OPEC members to
meet the cartel's targets," said spokesman Tony Fratto.
"Regardless, OPEC has an obligation to keep the market
well-supplied and to consider the health of the global economy,
so efforts to limit the benefits of lower energy prices are
short-sighted," he said.
OPEC, however, is desperate to halt the slide in prices
with economists predicting 11 of OPEC's 12 members, as well as
Russia and Mexico, will face budget deficits with crude oil at
$40 a barrel.
Energy analysts said the cuts could bolster prices in the
longer run if OPEC members comply and if demand falls less than
expected in 2009.
"The biggest question about how effective this agreement
will be is just how much demand will contract," said Sarah
Emerson, director of Energy Security Analysis Inc in Boston. "I
think OPEC is showing that they have strong intentions to
support prices."
The slump in prices has already sent shock waves through
oil producer countries and top companies, leading to cutbacks
and delays in spending on key projects that had promised to
boost future world output.
The soft market has also led oil refiners in the United
States, the world's biggest energy consumer, to slow down fuel
production to match weak consumer demand.
The U.S. Energy Information Administration said the
nation's crude and refined fuel stockpiles rose last week as a
demand slump led refiners to run less oil. []
(Additional reporting by Christopher Johnson; Editing by
Marguerita Choy)
