LONDON -- Plummeting oil prices have rattled the energy industry, leading oil-rich nations and energy companies to cut production and investment in an effort to stop the slide.

Oil prices hit a more than 4½-year low this week, falling 77% in the past five months. On Friday, crude oil for January delivery fell $2.35, or 6.5%, to $33.87 a barrel on the New York Mercantile Exchange. Oil producers who were enjoying record-setting revenue earlier this year are re-examining projects that now are of questionable value. Moreover, recent reports indicate that oil consumption in Europe and the U.S. appears likely to level off for the foreseeable future.

This was the backdrop of a meeting Friday of oil-producing countries and consumers in London. Saudi Oil Minister Ali al-Naimi, perhaps the most influential voice in the oil industry, gave a gloomy assessment, saying tumbling oil prices were "wreaking havoc on the industry." Current and planned investments were under threat, he said, potentially crimping global supplies that could lead to future oil price increases when demand recovers.

"Reprioritization is the buzzword," said Daniel Yergin, chairman of energy consultants Cambridge Energy Research Associates, in an interview. "If you look at the high-cost projects, many of them are on hold."

Nearly across the board, oil companies have begun cutting spending. A survey by Barclays Capital found 2009 capital budgets were 12% lower than 2008 spending plans, and some believe they might head lower. Budgets in the U.S. and Canada are being cut the most, as projects in the high-cost oil-sands and unconventional natural-gas fields now make less economic sense. Companies such as Chevron Corp. and ConocoPhillips have delayed announcing budgets to spend more time assessing the market.

"It's not just the price, but the uncertainty of where prices are going," said Larry Goldstein, director of the Energy Policy Research Foundation in Washington, D.C. "This creates the equivalent of investment paralysis."

The last precipitous fall in energy prices, in the late 1990s, unleashed a wave of industry mergers as stronger competitors gobbled up the financially weak. So far, the lack of stability combined with tight credit markets is preventing combinations.

"This market is just jumping all over the place still," Exxon Mobil Corp. Chairman and Chief Executive Rex Tillerson said recently. Mr. Tillerson said it will take time for valuations to settle before buyers and sellers can come to agreements.

Meanwhile, the volatility of oil prices was a major theme at the London meeting. U.K. Prime Minister Gordon Brown, who hosted the forum, warned that volatility was the energy world's "most pressing challenge" as it called into question investments in new supplies.

The circumstances of the summit couldn't have been more different from the last meeting, in Jidda, Saudi Arabia, in June, when crude was approaching its intraday peak of $147 a barrel, which it hit in July. Then, delegates from consuming countries begged producers to pump more to calm oil markets. Now, producers are hurting as the global economic slowdown sends oil demand into a tailspin.

Mr. Brown said the surge in prices had shaved $150 billion off global economic output this year, and he issued a call for improved transparency and better regulation of commodities markets. Many observers believe that the large-scale entry by investors into commodities markets beginning in 2005 pushed up prices, and now a selloff is exacerbating falling prices.

There is a lack of consensus, however, on how to deal with price instability. "Of course, everyone agrees the price swings are absolutely mad," said Paolo Scaroni, chief executive of Italian oil company Eni SpA. "But to move from this statement to practical action is a different story."

The meeting reflected the shock prevailing among oil producers at crude's steep decline and the apparent inability to stop it. The Organization of Petroleum Exporting Countries announced this week that it would cut output by a record 2.2 million barrels a day, but that didn't prevent crude's slide.

As part of OPEC's effort to stabilize prices and push them back up, Mr. Naimi said that $75 a barrel was "fair and reasonable," and warned that "when oil is priced lower, such as it is now, there will be less investment and less future supply."

But for the time being, some of the world's oil companies are holding steady on spending. "If you look at the long term, there is a need for supply and that investment needs to occur now," said Chevron spokesman Kurt Glaubitz.

A report by Cambridge Energy highlighted the danger of investment stagnating. It said the oil industry will need to spend more than $150 billion a year on new oil production over the next few years to generate adequate supplies for future demand.

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