ORAN, Algeria — OPEC on Wednesday agreed to slash 2.2 million barrels from its daily production — its single largest cut ever — while bloc outsiders Russia and Azerbaijan announced their own cutbacks of hundreds of thousands of barrels from the market.
"I hope we surprised you," OPEC President Chekib Khelil said when asked whether the size of the cut would shock moribund oil markets into an upward trend. "If you're not surprised, we need to do something about it."
Digital Access For Only $0.99
For the most comprehensive local coverage, subscribe today.
And yet markets weren't impressed, as oil prices tumbled below $40 for the first time since the summer of 2004.
Markets had already priced in a vastly reduced flow of oil, and benchmark crude prices fell as low as $39.88. Light, sweet crude for January delivery tumbled 8 percent, or $3.54, to settle at $40.06 on the New York Mercantile Exchange.
"There's just so much oil in inventory out there right now," said Michael Lynch, president of Strategic Energy & Economic Research. "Nobody wants to buy this stuff."
In just five months, crude has given up all of the price gains made over the past four years.
OPEC said oil ministers of the 11 nations under the group's quota system agreed to take 4.2 million barrels a day off the market, but that includes two previously announced cuts that totaled 2 million barrels. That leaves the new output reduction announced Wednesday at 2.2 million barrels, effective Jan. 1.
Focusing on the shrinking oil market, OPEC noted in its statement that "crude volumes entering the market remain well in excess of actual demand."
"Moreover, the impact of the grave global economic downturn has led to a destruction of demand, resulting in unprecedented downward pressure being exerted on prices," it said.
The group said "if unchecked, prices could fall to levels which would place in jeopardy the investments required to guarantee adequate energy supplies in the medium to long term."