By Christian Schmollinger Dec. 18 (Bloomberg) -- Crude oil traded near the lowest in more than four years on skepticism that OPEC’s larger-than- expected supply cut will be enough to boost prices as fuel demand drops. Oil extended yesterday’s 8.1 percent decline after OPEC agreed that the group’s 11 members with quotas will trim current production by 2.46 million barrels a day to 24.845 million barrels a day. U.S. fuel consumption in November declined 7.4 percent from a year earlier to the lowest for the month since 1998, the American Petroleum Institute said yesterday. “Worldwide demand for fuels is falling more than expectations,” said Ken Hasegawa, a commodity derivatives sales manager at Newedge Group in Japan. “The OPEC cut was much bigger than expected but it won’t be supportive for this market. This market can go down to $30.” Crude oil for January delivery was at $39.78 a barrel, down 28 cents, at 1:24 p.m. Singapore time on the New York Mercantile Exchange. The contract earlier fell as much as 87 cents, or 2.2 percent, to $39.19 a barrel, the lowest since July 13, 2004. The January contract expires tomorrow. The more active February contract was at $44.72 a barrel, up 11 cents. Prices have tumbled 73 percent from a record $147.27 on July 11. Yesterday, futures declined $3.54 to $40.06 a barrel. “OPEC will be seen as having done the sensible thing,” said Tony Regan, a Singapore-based independent oil and gas consultant in an interview on Bloomberg Television. “However, they are the supply-side equation and no one is looking at the supply side. People are more focused on declining demand.” The Organization of Petroleum Exporting Countries’s cut, agreed to yesterday at a meeting in Oran, Algeria, is larger than a 2 million-barrel reduction indicated Dec. 16 by Saudi Arabian Oil Minister Ali al-Naimi. OPEC Compliance “The market isn’t prepared to buy this straight off the bat,” said Mark Pervan, a senior commodity strategist at Australia and New Zealand Banking Group Ltd. in Melbourne. “They’ll be looking to see over the next months whether there is compliance. With such a big cut there is a higher risk that they won’t comply to the number.” OPEC’s rate of compliance with a previous 1.5 million barrel a day output cut is more than 85 percent, al-Naimi told reporters yesterday before the ministerial meeting that decided production targets. “I don’t think OPEC can keep this production cut at the level they decided,” said Newedge’s Hasegawa. “They have to make money. Cheating will begin and the market knows that.” Russian Disappointment Russia cut oil exports by 350,000 barrels a day last month and may reduce supply a further 320,000 barrels a day next year, in collaboration with OPEC, if prices remain weak, Russian Deputy Prime Minister Igor Sechin told OPEC ministers yesterday. Other non-OPEC producers, including Kazakhstan, may trim production as well, Sechin said. “Also the market was a little disappointed with the soft stance that Russia is taking,” said ANZ’s Pervan. “The absence of a strong message from Russia and other non-OPEC suppliers was a reason the market was unimpressed with the announcement.” Azerbaijan may lower production as much as 300,000 barrels a day, Energy Minister Natig Aliyev said in Oran. BP Plc and partners shut two platforms at the Central and West Azeri fields in the Caspian Sea following a gas leak on Sept. 17. The group will next meet on March 15 in Vienna and has chosen Angolan Oil Minister Jose Maris Botelho de Vasconcelos as its president for 2009. Brent crude oil for February settlement was at $45.50 a barrel, down 3 cents, at 1:29 p.m. Singapore time on London’s ICE Futures Europe exchange. Bearish Inventories Oil also dropped after the U.S. government said supplies climbed for the 11th time in 12 weeks. Inventories rose 525,000 barrels to 321.3 million barrels last week, the U.S. Energy Department said yesterday in a weekly report. Supplies have climbed 11 percent since Sept. 19. U.S. gasoline inventories gained 1.3 million barrels to 204 million barrels in the week ended Dec. 12, the Energy Department report showed. Supplies of distillate fuel, a category that includes heating oil and diesel, climbed 2.94 million barrels to 133.5 million barrels, the highest since November 2007. U.S. refiners operated at 84.1 percent of capacity last week down from 87.4 percent the previous week, the Energy Department said. Processors have had little incentive to produce fuels as the price difference between gasoline and crude oil has been negative since September. “Dovetailing with the OPEC announcement, it was a pretty bearish DOE report,” Pervan said. “U.S. refinery output fell and that didn’t help either.” To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.

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