* OPEC cuts 2.2 million bpd of crude output
* Dealers say record cut not enough to offset demand slide
(Updates prices with settlements)
By Richard Valdmanis
NEW YORK, Dec 17 (Reuters) - Oil prices dropped to their
lowest in more than four years on Wednesday after OPEC
announced a record supply cut that dealers said may fail to
fully offset slumping world energy demand.
U.S. crude oil prices <CLc1> fell $3.54 to settle at $40.06
a barrel after dipping below $40 for first time since July
2004. London Brent <LCOc1> fell $1.12 to $45.53.
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 bigger than expected and will
add to previous OPEC cuts of 2 million bpd since September
[]. But oil dealers 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.
The White House, which has been fighting to rescue the U.S.
economy from a severe slowdown, 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
big producers Russia and Mexico, will face budget deficits with
crude oil at $40 a barrel.
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.
Energy analysts said that despite the market's initial
reaction, OPEC's cuts could bolster prices in the longer run if
members comply and demand falls less than expected.
"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."
Oil's losses on Wednesday came amid continued weakness in
U.S. stock markets as economic gloom overshadowed government
efforts to stimulate growth, including this week's move by the
Federal Reserve to slash interest rates.
The soft energy market has also led oil refiners in the
United States, the world's biggest energy consumer, to slow
down fuel production to match weak 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. []
Auto group AAA said on Wednesday that U.S. travel over the
Christmas holidays will fall more than 2 percent this year, the
first decline since 2002.
(Additional reporting by Christopher Johnson; Editing by
Marguerita Choy)
