Oil prices tumble below $40 on dour economic news

Oil prices tumbled below $40 a barrel Monday as reports from manufacturers like Toyota and Caterpillar pointed to a worsening global economic climate and serious deterioration in energy demand.

Light, sweet crude for February delivery fell $2.45, or nearly 6 percent, to settle at $39.91 a barrel on the New York Mercantile Exchange. Crude prices have tumbled 70 percent since peaking above $147 in July.

Phil Flynn, an analyst at Alaron Trading Corp. in Chicago, said even the continuing cold weather and a falling dollar haven't been enough to sustain a rally.

"I think the concerns about economic weakness still seem to be overshadowing the entire complex," Flynn said.

Toyota Motor Corp. projected its first-ever operating loss, acknowledging Monday that its nine-year stretch of global vehicle-sales growth had stalled.

Crashing auto demand, especially in its key U.S. market, proved too much for Japan's top automaker, which had been reporting huge sales numbers from its fuel-efficient models, including the Camry sedan and Prius gas-electric hybrid.

Caterpillar Inc. said Monday it would cut executive pay by up to 50 percent next year because of weakening demand.

The world's largest maker of mining and construction equipment also said it would slash pay for senior managers between 5 percent to 35 percent in 2009.

Crude producers have not been able to cut output fast enough.

The Organization of Petroleum Exporting Countries said last week it would slash production by 2.2 million barrels a day in its largest cutback ever, trying to stem the rapid price decline.

But oil trader and analyst Stephen Schork said in order for OPEC to adhere to its January quota, the cartel first must adhere to its November cut of 1.5 million barrels a day.

"Given crude oil's weakness since OPEC's announcement, it is safe to assume the market is a bit skeptical regarding the group's ability to comply," Schork wrote in his daily publication, The Schork Report.

OPEC leaders say if crude prices do not return to around $70, exploration and production could be cut. That, many experts warn, could lead to future price shocks when the economy rebounds.

On Sunday OPEC President Chakib Khelil told Algeria's state radio that OPEC was willing to cut production as much as was necessary to stabilize oil prices.