SIOUX FALLS (South Dakota) - OIL prices tumbled below $40 (S$57.91) a barrel on 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 $2.45, or nearly 6 per cent, to settle at $39.91 a barrel on the New York Mercantile Exchange. Crude prices have tumbled 70 per cent since peaking above $147 in July.

In London, February Brent crude tumbled $2.55 to settle at $41.45 a barrel on the ICE Futures exchange. Mr Phil Flynn, an analyst at Alaron Trading Corp in Chicago, said even the continuing cold weather in the US and a falling dollar haven't been enough to sustain a rally.

'I think the concerns about economic weakness still seem to be overshadowing the entire complex,' Mr Flynn said.

Toyota Motor Corp projected its first-ever operating loss since it began such reports, acknowledging on Monday that its nine-year stretch of global vehicle-sales growth had stalled.

Crashing auto demand, especially in its key US 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 on Monday it would cut executive pay by up to 50 per cent 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 per cent to 35 per cent in 2009.

The world's biggest crude producers have not been able to slash output fast enough.

The Organisation 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,' Mr 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.

On Sunday, Opec President Chakib Khelil told Algeria's state radio that Opec was willing to further cut production as much as was necessary to stabilise oil prices.

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 (developed countries), 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 Mr Addison Armstrong, director of market research at Tradition Energy.

The January contract, which expired on Friday, fell $2.35 to settle at $33.87, the lowest level since early 2004. With US 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 Mr 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 a gallon (above $1.05 a litre), have not led to increased demand as millions of Americans lose jobs and cut back on spending. -- AP