Oil dropped below $40 a barrel on Friday as a weakening global economy overshadowed OPEC's attempts to curb crude supply and boost prices.
U.S. non-farm payrolls numbers due at 1330 GMT (8:30 a.m. EST) are expected to add to the gloom, after data released the previous day showed applications for U.S. jobless benefits hit a 26-year high.
U.S. light crude for March delivery fell $1.25 to $39.92 a barrel by 1228 GMT (7:28 a.m. EST), while London Brent, which usually trades below its U.S. counterpart, fell 71 cents to $45.75.
U.S. crude is trading well below Brent as inventories in Cushing, Oklahoma -- the delivery point for the U.S. crude contract -- are at record levels. U.S. crude for delivery in two months time is trading just under $45 a barrel.
The global economic slowdown has curbed demand for fuel around the world, knocking oil sharply lower since it peaked at almost $150 in July.
The head of Italy's largest oil company predicted on Friday that oil could stay as low as $40 for the rest of 2009.
"A price of $40 a barrel, it's roughly my forecast for this year," Eni (ENI.MI) Chief Executive Paolo Scaroni said.
That level is too low for members of the Organization of the Petroleum Exporting Countries to generate enough revenue or encourage investment in new supply.
In a bid to boost prices, OPEC agreed to cut a further 2.2 million barrels per day (bpd) from January. The reduction comes on top of curbs of 2 million bpd in place since September.
OPEC sources have indicated the group could cut a further 1 million bpd from output when it next meets on March 15.
"These are significant output cuts and if they can implement more then we should see global stock cover start to come down. Until then prices seem well supported above $40 a barrel by the cuts so far," said Julian Keites at Newedge.
U.S. Democrats in the Senate on Thursday pushed toward passage of a huge economic stimulus package despite scant Republican support, hoping to boost the U.S. economy, which could help stem a decline in fuel demand.
