Oil down 10%: Economy trumps cuts
Prices drop to near $40 a barrel as economic worries overwhelm a report that OPEC has nearly hit production cut goals.
NEW YORK (CNNMoney.com) -- Oil prices dropped 10% Monday as concerns over a weakening economy overshadowed signs of supply reductions from OPEC.
U.S. crude for April delivery settled down $4.61 to $40.15 a barrel in New York. Prices fell as low as $39.84 a barrel during the session.
A reading on U.S. manufacturing activity from the Institute for Supply Management showed a rise in February after 12 months of declines, but the sector continues to contract, according to a report released Monday.
In the corporate world, insurance giant American International Group (AIG, Fortune 500) reported a massive $62 billion quarterly loss as the government revealed a retooled plan to prevent the firm's collapse - a plan which now totals $162.5 billion. For the full year of 2008, AIG said it lost $99 billion.
"It's a reminder that the financial crisis is still with us," said Phil Flynn, senior analyst with Alaron Trading in Chicago.
The crumbling economy has been the primary drag on oil prices since last summer, when prices touched an all-time high of $147.27 a barrel.
Europe: Weakness in the U.S. is just one part of a greater worldwide decline as newer members of the European Union are showing signs of trouble, according to Flynn.
The E.U. rejected a request at a meeting this weekend from Hungary for a regional bailout, according to Reuters. Other newer members have also petitioned for region-specific help. European Economic and Monetary Affairs Commissioner Joaquin Almunia said the E.U. had to fight protectionism.
The economic crisis has been hitting newer eastern European members, where economic growth had been rapid before the crisis began.
OPEC: The deepening economic crisis overshadowed signs that the Organization of Petroleum Exporting Countries, which produces about 40% of the world's oil, had nearly met its goals of reducing production since last September.
Sliding prices since last summer prompted OPEC to set a goal of taking 4.2 million barrels per day off the market since September.
According to a Reuters survey of oil firms, OPEC met about 81% of its pledge to cut production by February. The group pumped an estimated 25.62 million barrels per day down from 26.27 million per day in January.
OPEC's production cuts have succeeded in slowing oil's rapid price decline, according to Flynn. But people think that "OPEC won't matter if this economic crisis continues to fester," he added. 
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