Opec President Chakib Khelil says the cut will stabilise the price of oil
The oil producers' cartel Opec has agreed to make a record cut in output, slashing 2.2 million barrels per day (bpd) from its current supply.
Opec has made two other cuts since September, meaning it has cut a total of 4.2 million bpd in four months.
Despite the record cut, oil prices continued to fall as US data provided fresh evidence of falling demand.
US light, sweet crude for January fell as low as $39.94 a barrel, its first time been below $40 since July 2004.
The falls were blamed on US inventories figures, which showed that demand for petrol in the four weeks to 12 December was down 2.7% from the same period last year.
The price later recovered slightly to trade on the New York Mercantile Exchange at $40.31, which was down $3.29 from Tuesday's close.
Opec said that it hoped the record cut would boost prices but that it had no formal price target.
The cut means that the target for production for the 12 member states is now 24.845 million bpd.
The cut is effective from 1 January, but the big question with Opec production cuts is always whether the member states will actually make the cuts they have agreed to.
"Given the still-substantial risks to demand and ongoing scepticism on Opec compliance, it could take some time before prices recover materially above $50 to $55 per barrel," said Gordon Gray from Collins Stewart.
Oil prices fell following the agreement, because weekly US inventories figures provided further evidence that motorists were cutting back on their consumption.
There was some doubt among analysts about whether the cut would be enough to push prices higher, even if members did comply with it.
"Historically Opec has had to remove around five million barrels from the market in previous slumps, and they're facing bigger problems now than they have done before," said Michael Lewis, head of commodity research at Deutsche Bank.
Oil prices have fallen by more than $100 a barrel from the peak above $147 that they reached in July.
Prices have been falling amid concern that the recession will reduce demand for oil.
Falling consumption means that industrialised nations currently have stockpiles of oil equivalent to 57 days of consumption - supplies that would typically be about 52 days at this time of year.
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