Oil prices dropped nearly 10 percent on Monday as a deteriorating world economy threatened to cut further into fuel consumption, outweighing OPEC's strong compliance with supply curbs.
Economic woes were also battering financial markets and making it likely the International Monetary Fund would downgrade its global growth forecasts into negative territory.
U.S. crude dropped $4.33 to $40.43 by 2:17 p.m. EST. London Brent crude fell $3.96 to $42.39 a barrel.
The deepening recession has crimped demand for oil worldwide and sent oil prices off record peaks over $147 a barrel in July, prompting OPEC to pledge cuts totaling 4.2 million barrels per day (bpd) since September.
A Reuters survey showed the group enforced 81 percent of the curbs last month, with production down for the sixth straight month in February.
Although, OPEC, by all counts, is doing a good job in complying to its quota levels, it looks like flat price is being driven by the deteriorating global economic environment as reflected in the Dow Jones (industrial average), said Nauman Barakat, senior vice president at Macquarie Futures USA.
U.S. stocks extended their sharp losses on Monday as insurer American International Group
European equities ended sharply lower, with the FTSEurofirst 300 <.FTEU3> index of top European shares down 5.2 percent to 682.31 points -- the lowest close in six years and a whisker away from its lifetime low of 681.17 points hit in March 2003.
The economic crisis has prompted some members of OPEC to call for further output reductions when the group next meets on March 15.
Algerian Energy and Mines Minister Chakib Khelil said it was quite possible OPEC would cut again.
But Iran's Oil Minister Gholamhossein Nozari said he did not expect another reduction because the group's 80 percent commitment to existing curbs had helped stem price falls.
(Reporting by Richard Valdmanis, Matthew Robinson, Gene Ramos and Robert Gibbons in New York, Christopher Johnson in London; Editing by Christian Wiessner)