OPEC announced Wednesday that it will cut oil production by a record 2.2 million barrels a day beginning Jan. 1 in hopes of boosting prices, but the cost of oil plunged immediately to its lowest level in more than four years.
Traders on the New York Mercantile Exchange seemed unfazed by the announcement, which had been expected, as U.S. crude oil prices for January delivery dropped $3.54 to $40.06 a barrel.
It marked the lowest price since July 13, 2004, when the cost of oil was $39.44 a barrel.
The planned reduction marked the biggest single daily production cutback on record and will follow a recent decrease of 2 million barrels a day announced earlier. The cutbacks will mean the 12 OPEC countries will produce about 24.8 million barrels of oil a day.
The Organization of Petroleum Exporting Countries, which includes Saudi Arabia, produces about 40 percent of the world’s oil.
Oil prices have fallen dramatically since their high of $147 a barrel in July because of falling demand linked to the worsening global economic downturn and a recession in the United States. OPEC’s move was intended to ensure that less supply will mean the cost of oil will go up.
OPEC President Chakib Khelil said his cartel hopes the price of a barrel of oil will stabilize between “$70 to $80 at least,” CNNMoney.com quoted him as saying.
Declining oil prices have been the one bright spot all through the autumn for American consumers, who are mired in a weakening economy, have reduced spending on everything from automobiles to clothing and have cut back on their driving.
The Bush administration expressed displeasure with OPEC’s decision, saying it was “shortsighted” and that it is obligated to keep the oil 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,” White House spokesman Tony Fratto said.
“Regardless,” he said, “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 shortsighted.”
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