Oil prices tumble below $39 despite OPEC cuts

NEW YORK — Oil prices tumbled below $39 a barrel Monday as traders shrugged off reports that OPEC had slashed production, focusing instead on falling stock prices.

Benchmark crude for April delivery fell 4 percent, or $1.59, to settle at $38.44 a barrel on the New York Mercantile Exchange. Prices got an early bump on reports that the Organization of the Petroleum Exporting Countries had made good on a pledge to cut production by more than 4 million barrels per day.

Brent crude rose 75 cents to $41.40 on the ICE Futures exchange in London.

Before noon, however, prices slipped below $40, where they had spent all of last week.

"Reality has set in," said Andrew Lebow, senior vice president and broker at MF Global. "Demand is soft. Chinese imports are down. And everybody has their eyes glued on the equity markets."

The Standard & Poor's 500 index dropped to its lowest level in nearly 12 years Monday. The benchmark index fell as low as 749.65, dropping below its Nov. 20 close of 752.44. That was the S&P 500's worst finish since April 14, 1997.

Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, said traders believe OPEC cuts are insignificant in the context of an unprecedented plunge in demand. Millions of laid off workers are not driving to work and companies, from manufacturers to the corner store, have slashed spending.

"They're having a tough time selling oil," Ritterbusch said. "There's so much out there right now."

Analyst Addison Armstrong noted a report by Petrologistics that OPEC has successfully slashed crude oil production in an attempt to force prices higher. The total February output for OPEC countries is expected to average 25.3 million barrels a day, down 4.3 million barrels a day from September, Armstrong said.

The Energy Information Agency reported last week that crude inventories in U.S. storage fell unexpectedly from a 20-month high, which some saw as proof the OPEC cuts were starting to stabilize the market.

OPEC's former president, Algerian Energy and Mines Minister Chakib Khelil, told state media on Sunday that the 13-nation cartel is likely to cut further when it meets on March 15.

While production cuts will help drain a massive global surplus of crude, "if they cut too much, you'll start to see all sorts of inflation in oil prices and that's not good," said Gene McGillian, analyst with Tradition Energy.