Oil prices closed at a 17-month low on Friday despite OPEC's decision to cut its output quota by 1.5 million barrels a day, beginning in November.

A barrel of crude ended the week at $64.15 US in trading on the New York Mercantile Exchange, down $3.69 from Thursday's close. At one point in the session, oil prices fell as low as $62.65.

OPEC oil ministers decided to cut the quota during an emergency meeting in Vienna on Friday in an attempt to shore up sagging prices of oil.

Crude is selling for 56 per cent less than this year's historic heights because the worldwide economic crisis has put a huge crimp in demand.

"Oil prices have witnessed a dramatic collapse unprecedented in speed and magnitude," said a statement from the 13-nation organization. "This slowdown in demand is serving to exacerbate the situation in a market which has been oversupplied with crude for some time."

OPEC nations continue to overproduce by about 300,000 barrels a day from the official quota of close to 29 million barrels. The total amount that the 13-nation group wants to take off the market is even higher — around 1.8 million barrels a day.

Will cut more if necessary

Officials indicated they would be ready to cut the quota further if the 1.5 million barrel reduction doesn't end the price freefall.

OPEC president Chakib Khelil said OPEC was ready to convene another emergency session before its next planned gathering in December in Algeria "if there are further decisions that have to be made."

OPEC hardliners — including Iran, Libya and Venezuela — had been demanding a reduction no greater than two million barrels a day going into the meeting. The countries have argued that a production slash should put upward pressure on oil prices.

Iranian Oil Minister Gholam Hossein Nozari said Friday before the meeting that a cut of about two million barrels a day would stabilize prices that have fallen more than 50 per cent since peaking at $150 US a barrel in mid-July.

Iraqi Oil Minister Hussain Al-Shahristani said that if crude were priced below $80 US a barrel, his country would be forced to rethink its spending next year.

"Our budget for 2009 is based on $80 per barrel and so any fall beyond that is going to cause a strain on our budget," he said.

But some analysts have said the cut might not be enough to boost prices because the global demand for oil is weakening.

The latest weekly report from the U.S. Department of Energy shows that demand has fallen in 38 of the past 42 weeks. U.S. demand is down nearly 10 per cent during the past four weeks, year on year. But the United States still consumes one out of every four barrels of oil produced.

"This is not a supply issue," said trader and analyst Stephen Schork. "OPEC can affect supply but they can't touch the demand side, which right now is a house of cards."

Emergency meeting

The meeting was initially scheduled for Nov. 18, but that was abruptly rescheduled for Friday as oil prices continued to fall.

"They're in a bit of panic," said Schork. "They underestimated what happens when the bubble implodes."

Khelil said before the meeting that while output reduction "has to be discussed," any decision had to avoid aggravating economic turmoil.

Khelil said radical production cuts could further damage nations ensnared in the global economic crisis.

"With so many economies in trouble, OPEC has to be careful not to kill off crude demand" said Peter McGuire, managing director at investment firm Commodity Warrants Australia in Sydney.

With files from the Associated Press