Oil prices fell below $42 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 $1.29, or 3 percent, to $41.07 a barrel on the New York Mercantile Exchange. Crude prices have tumbled 70 percent since peaking above $147 in July.
Toyota Motor Corp. projected its first-ever operating loss since it began such reports, acknowledging Monday that its nine-year stretch of global vehicle-sales growth had stalled.
Crashing auto demand, especially in its key U.S. market, and the profit erosion from a surging yen proved too much for Japan's top automaker, which had been booming on the success of 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.
The world's biggest crude producers have not been able to slash 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.
OPEC has had a difficult time staying ahead of an unprecedented deterioration in demand as a recession spreads across the globe.
"Large stockpiles of crude throughout the (Organization for Economic Cooperation and Development), falling demand in China and negative refining margins make it difficult to see how such supply-driven initiatives can have a near-term positive effect on crude prices," said Addison Armstrong, director of market research at Tradition Energy.
The January contract, which expired Friday, fell $2.35 to settle at $33.87, the lowest level since early 2004. With U.S. stockpiles rising at the key storage facility in Cushing, Oklahoma, the price dropped as brokers and traders attempted to unload supply for whatever price they could get.
"There's so many prompt barrels sitting around that that's really sitting on the market right now, especially the near contracts," said Michael Lynch, president of Strategic Energy & Economic Research. "The cuts are really going to have an effect somewhere around February, March."
Even gas prices, which have tumbled from summer highs above $4, have not led to increased demand as millions of Americans lose jobs and cut back on spending.
The national retail average price for a gallon of regular gas fell a half penny to $1.663 a gallon overnight, according to auto club AAA, the Oil Price Information Service and Wright Express. Oil industry analyst Trilby Lundberg said that's the lowest price in nearly 5 years.
Gas is about 29 cents a gallon below what it was a month ago and more than $2.44 below where it was in July when prices peaked at $4.11 per gallon.
The nation's lowest price was $1.37 in Cheyenne, Wyo., according to a national survey released Sunday. In the continental United States, the highest price for a gallon of gasoline, on New York's Long Island, was less than half the record prices seen in July.
Natural gas prices are plummeting as well.
"The combination of strong supply growth and rapidly declining demand has caused an ugly natural gas outlook to turn much worse," Raymond James analyst J. Marshall Adkins wrote in a research note Monday.
Manufactures are slashing production, further eroding prices for natural gas that is used to power machinery.
Natural gas for January delivery fell 8 cents to $5.253 per 1,000 cubic feet.
In other Nymex trading, gasoline futures slipped by 2.64 cents to 94.29 cents a gallon and heating oil fell less than penny to $1.387 a gallon.