Crude oil for January delivery dropped to a low of $US39.88 during trading on the New York Mercantile Exchange yesterday before closing at $40.06, down 8.1% from Tuesday.

The fall in prices reinforces the perception that demand destruction and continued weakness in the market more than offset OPEC's ability to influence prices with output cuts.

Analysts agreed that while the cuts may stem the increase in crude stocks, it wasn't enough to remove the existing surplus.

The AP quoted Strategic Energy & Economic Research president Michael Lynch as saying there was so much oil in inventory that nobody wanted to buy it.

Tradition Energy marketing research director Addison Armstrong told Bloomberg that OPEC was facing the distinct possibility of oil falling to $US30/bbl or lower and the cartel had to bring supply down further as demand wasn't likely to improve until the second half of next year at the earliest.

Analysts added that traders had instead focused on economic data that continued to point towards a long recession with Alaron Trading Corporation analyst Phil Flynn telling AP that people lacked confidence in the economy.

Questions were also raised about OPEC members and their compliance to rate cuts.

While Saudi Arabia Oil minister Ali al-Naimi said OPEC's rate of compliance with the previous output cut of 2MMbpd was more than 85%, Armstrong said there was such a lack of trust amongst OPEC when it came to compliance that members had every incentive to cheat on quotas.

"We will have to see their compliance. If they come close to their objective, we believe they will forestall a further decline in prices," Energy Security Analysis managing director Sarah Emerson told Bloomberg.

Other producers have also been tipped to reduce production with Azerbaijan considering a cut of up to 300,000bpd, according to its Energy Minister Natig Aliyev while Russia may offer cuts of 300,000-400,000bpd.