ORAN, Algeria - OPEC said yesterday that it would slash 2.2 million barrels from its daily production - the 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," Chekib Khelil, president of the Organization of Petroleum Exporting Countries, 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."
Yet the markets weren't impressed. Crude oil sank to $40.20 a barrel immediately after the announcement, a level last seen in the summer of 2004 and a clear sign investors are more worried that the world is heading for a long and painful recession in which energy use will continue to erode.
Making matters worse for OPEC, Moscow distanced itself from direct ties with the 13-nation producers' group, further dampening OPEC hopes of coordinated production cuts that might put a floor under crude prices.
Light, sweet crude for January delivery tumbled yesterday by 8 percent, or $3.54, to settle at $40.06 on the New York Mercantile Exchange.
Meanwhile, the U.S. Energy Information Administration yesterday forecast that oil consumption would level off - with virtually no growth between now and 2030. It attributed that to increases in energy efficiency, greater use of renewable fuels and an expected rebound in oil prices.
The agency projected a 3 percent annual increase of renewable energy use, including solar, wind and biofuels such as ethanol. As a result, U.S. dependence on foreign oil is expected to decline sharply, the EIA report predicted, with liquid fuel imports - primarily oil - accounting for only 40 percent of U.S. consumption by 2025, compared with 58 percent last year.
OPEC said oil ministers of the 11 nations under the group's quota system agreed to the latest reduction, effective Jan. 1. The group already had cut ouput twice recently by a total of 2 million barrels a day. So yesterday's decrease means 4.2 million barrels a day have been taken off the market.
"The impact of the grave global economic downturn has led to a destruction of demand, resulting in unprecedented downward pressure being exerted on prices," OPEC said in yesterday's announcement.
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."
Besides signaling that a major cut was in the offing in the days leading up to the Oran conference, OPEC ministers had expressed hope that Russia - the No. 2 producer after Saudi Arabia - would join in a significant cutback that would bolster prices.