The world's big oil producers, flush and powerful just months ago, said they would cut crude supplies by a record amount but found even that couldn't stop prices from sliding to their lowest level in four years.
The plunge in oil prices has slammed oil-producing economies and shelved important energy projects. Oil has fallen by more than two-thirds from its high last July, turning a boom year into one of the most alarming in memory for producers. On Wednesday, OPEC said it would cut output by 2.2 million barrels a day, or about 7%, after slicing 1.7 million barrels a day over the past three months.
The cuts by the 12-member Organization of Petroleum Exporting Countries, meant to be effective Jan. 1, are huge by OPEC standards and clearly intended to send a message. They would mark the swiftest reduction in the cartel's production since it began setting output quotas in 1982.
The new cut was 200,000 barrels a day more than expected, and two other big producers, Russia and Azerbaijan, said they may contribute an additional 600,000 barrels a day in cuts to show support. "We needed to do something big. Demand is falling fast," said Kuwait Oil Minister Mohammad Al Olaim.
But within minutes of the announcement, U.S. benchmark crude prices fell sharply. They ended up down 8.12%, or $3.54, to $40.06, on the New York Mercantile Exchange.
The plunge in oil prices is a rare dose of good news for the U.S., Japan and other struggling economies that rely heavily on oil imports. The sharp drop in oil prices amounts to the equivalent of a massive stimulus package for big consuming countries, worth hundreds of billions of dollars. That relief has taken some pressure off of airlines, shipping companies and commuters, and over time can pare the cost of goods ranging from car tires to children's toys. After soaring to more than $150 a barrel in intraday trading, oil prices have since plunged by more than $100 a barrel in just five months.
The extraordinary OPEC summit here on the shores of the Mediterranean reflected much of the grimness and tension now overshadowing the world economy. Delegates expressed astonishment at how deeply the economic slump has eaten into world-wide energy demand.
OPEC now satisfies around 40% of world oil needs, which stand just under 86 million barrels a day. OPEC officials acknowledge that Wednesday's agreed cuts probably won't reverse the fall in prices. A rebound may only happen, they say, when traders begin to see real declines in oil inventories and some hint that demand in consuming countries is beginning to pick up.
In a sign of the overall mood, Saudi Arabian oil minister Ali Naimi said he hoped the output cut would "bring the market into balance." But he acknowledged that the unprecedented move "may lead to higher prices or may not."
Unlike when prices were soaring and consuming countries clamored for more supply, Saudi Arabia, Iran, Kuwait and the other big OPEC producers now are mainly bystanders in a much bigger drama. "All we can do now is cut, and pray," said one OPEC delegate.
Collapsing oil prices have put dozens of big oil and other energy projects on hold. OPEC officials worry that the economic slowdown could weigh on oil prices for a year or even longer, keeping droves of important new oil projects from Brazil to the Persian Gulf from being economically viable.
OPEC ministers said in a statement that if unchecked, the rapid slump in prices could soon jeopardize "the investments required to guarantee adequate energy supplies in the medium to long term."
Shrinking oil revenues have also begun to eat a big hole in the budgets of oil-producing nations, several of which have based government spending on prices well over $70 a barrel.
Both Iran and Venezuela have warned their citizens of leaner times ahead as leaders rein in social spending. The pain has been particularly acute in Russia, where falling energy prices and the international credit crisis have halted a nearly decadelong boom.
After a long run of soaring prices and rising demand, OPEC faces its strongest headwinds in decades. Demand is retreating sharply -- and may never return to its 2007 levels -- in the U.S., the world's largest oil consumer. Europe and Japan are also skimping. But most chilling for OPEC are increasing signs of sluggishness in China, until now the primary driver of demand growth.
Oil demand in China fell in November for the first time in four years. Next year, demand is likely to grow by less than 3%, according to New York-based energy analyst Paul Ting, almost certainly too little to outweigh the declines in developed economies.
Russia, now the world's largest oil producer since Saudi Arabia began cutting output in August, joined the world's other top oil exporters here in an attempted display of solidarity, as did Azerbaijan. Neither country is part of OPEC, but the cartel is eager to get other exporters to share in the pain of output reductions.
Russian Deputy Premier Igor Sechin said his country's oil companies had already cut output last month by around 320,000 barrels a day, and could impose a similar cut in the months ahead if market conditions warrant. Azerbaijan said it was prepared to curtail output by more than a third, or around 300,000 barrels a day.
There was widespread surprise at the Azeri announcement in the oil industry. Most of Azerbaijan's oil production comes from a big complex of fields in the Caspian Sea, Azeri-Chirag-Gunashli, or ACG, which is operated by a consortium led by BP PLC. A person close to the British oil giant said the Azeri oil minister hadn't discussed the output cut with BP prior to the Oran announcement. "Clearly, clarification will be sought when he returns to Baku," the person said. BP declined to comment.
Russia's claim that it would cut oil output by around 320,000 barrels a day if prices continue to fall carries little weight, because the country already is expected to produce less oil next year.