NEW YORK (Reuters) - U.S. crude prices dropped more than 9 percent to $36 a barrel on Thursday as slumping demand and swelling U.S. inventories offset OPEC's record supply cut agreement.
The Organization of the Petroleum Exporting Countries on Wednesday agreed to cut output by 2.2 million barrels per day from January to counter oil's collapse from record highs above $147 a barrel in July.
"Following OPEC's announcement to cut so aggressively, market participants are (assessing) the degree of this move as being indicative of just how weak demand is globally for crude oil," said Chris Jarvis, senior analyst at Caprock Risk Management.
The January U.S. crude oil contract settled down $3.84 at $36.22 a barrel, after earlier hitting $35.98, the lowest price since June 2004. London Brent settled down $2.17 at $43.36 a barrel.
The International Energy Agency said that the market's fixation on falling demand was not likely to end soon as the economic crisis continues to grow.
"The price is not going higher because the market has expected the (OPEC cut) number," the IEA's Executive Director Nobuo Tanaka told Reuters.
"The global economy is getting worse, so the market is responding to this."
The sickly U.S. labor market showed little sign of improvement last week and continued weakness in the manufacturing sector held out no hope that unemployed workers would find a place in struggling factories.
U.S. stocks fell further on Thursday after S&P threatened to topple General Electric's long-standing credit rating and slumping oil prices hit energy stocks.
Next year's outlook is increasingly bleak as economic indicators show a deep global recession taking hold, causing oil demand to fall from the United States to China.
Deutsche Bank forecast demand will drop 1.2 percent in 2009, more bearish than predictions from the U.S. Energy Information Administration.
JP Morgan cut its 2009 average crude oil price forecast to $43 a barrel from $69 following OPEC's cut, and analysts say more declines are in store until a sufficient supply is taken off the market or demand levels swing back up.
U.S. inventory data released by the U.S. EIA on Wednesday showed stockpiles at Cushing, Oklahoma, the key delivery point for the New York Mercantile Exchange contract rose by 4.7 million barrels last week.
Total demand in the world's top consumer dropped 4.9 percent over the past four weeks, the EIA said.
No. 2 consumer China announced it will cut domestic fuel prices on Friday for the first time in almost two years to revamp its regulated pricing regime and revive growth.
The cuts of roughly 13 percent for gasoline and 17 percent for diesel could stimulate demand, analysts said.