ORAN, ALGERIA - Here's how bad things are for OPEC these days: It announced its largest-ever production cut Wednesday and oil prices promptly slumped to $40 a barrel, the lowest level in more than four years.
Ministers of the 13-nation oil cartel were trying to shock moribund markets into life by slashing output 2.2 million barrels a day, more than double two recent production cuts. "I hope we surprised you," said OPEC President Chakib Khelil when asked whether the move would send prices upward.
Instead the markets yawned and there appeared to be more good news for consumers -- at least for the short term. Although declining gasoline prices have begun to edge up after falling from an average of $4.11 a gallon in July to $1.65 on Friday, analysts believe oil's decline could send them even lower.
Benchmark crude prices tumbled to $39.88 per barrel Wednesday -- levels not seen since July 2004 on the New York Mercantile Exchange -- before settling at $40.06. In just five months, crude has given up all the price gains made over the past four years amid an oil glut and the spreading recession.
Gasoline prices have been plunging right behind crude, providing a bit of economic cover for almost everyone. Yet crude has fallen so far, so fast, there is growing alarm that consumers are being set up for a price shock.
OPEC's latest cut is likely to curtail, at least somewhat, the decline in gasoline and heating oil prices, said Peter Beutel, an oil analyst at Cameron Hanover.
What OPEC is trying to do is "slowly dry up a pool of available crude oil and, ultimately, it will mean higher prices," he said. By Memorial Day, he said, gasoline could be anywhere from 50 cents to $1 a gallon higher than current levels.
OPEC was unable to tamp down soaring oil prices over the summer, which hit a record near $150 a barrel in July, and it has been unable to stop crude on the way down. The problem confronting OPEC is that demand rather than supply has been ruling the market.
