Oil extended its losses to below $40 a barrel on Thursday, near its lowest in more than four years, as rising US crude inventories and further evidence of slowing demand trumped OPEC's biggest ever production cut.

Oil has nose-dived since its July all-time peak above $147, shedding almost three quarters of its value as the global financial turmoil cuts into fuel demand. Top forecasters are now predicting the first decline in world energy use since 1983.

US light crude for January delivery, which expires on Friday, fell 42 cents to $39.64 a barrel by 0559 GMT, after falling to $39.19 earlier in the session, the lowest since July 2004, and following an 8-per cent overnight drop.

London Brent crude for February shed 43 cents to $45.10.

JPMorgan cut its 2009 crude oil forecast to $43 a barrel from a previous $69 a barrel expectation following OPEC's cut.

The Organization of the Petroleum Exporting Countries, eager to build a floor under dipping prices, announced on Wednesday it would cut 2.2 million barrels daily of output starting Jan. 1, slightly more than expected.

It comes on the heels of 2 million barrels a day (bpd) of cuts since September, but instead of boosting oil prices, it deepened the gloom over demand.

"Countries other than the Saudis are going to have difficulty to comply with this cut. Those oil producing countries, if they want to survive, they have to produce, even at $40 oil," said Tetsu Emori, fund manager at Astmax Co Ltd in Japan.

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