Oil prices tumbled to fresh two-year lows on Thursday amid the specter of a full-blown and dangerous price war between OPEC and other producers.
December Brent crude futures expired $1.07 lower at $17.60 after slumping to a low $16.80, a level unseen since June 1999.
Light, sweet crude for December delivery dropped to $1.99 to $17.75 a barrel in trading on the New York Mercantile Exchange.
Worries about tensions between oil producers increased when the Organization of Petroleum Exporting Countries agreed Wednesday to reduce its daily production target for oil by 1.5 million barrels, or 6 percent, but only if non-OPEC producers share the burden by making a deep cut of their own and decreasing their output by 500,000 barrels.
The move was seen as one of the cartel's weakest and most uncertain agreements in recent memory.
Saudi Arabia on Thursday vowed OPEC would not blink first in the showdown with rival producers and urged Russia, the world's second largest oil exporter, to make deeper supply cuts or face a price collapse.
Ali al-Naimi, oil minister of OPEC's biggest producer, said the cartel would "absolutely not" cut output unless Russia made a sizeable contribution to supply curbs.
Further fueling fears of a price war, Kuwaiti Oil Minister Adel al-Subaih said he would not be surprised to see oil prices fall as low as $10 a barrel.
"There will be hard times to come in the form of low prices," the minister told reporters after OPEC's Wednesday meeting. "Then things will square up."
The economic slowdown this year and the ensuing downturn in demand for petroleum, which deepened following the Sept. 11 attacks on the United States, has left OPEC virtually powerless to keep prices buoyant.
OPEC wants to curb world supplies to lift prices back into a $22 to $28 a barrel band, but has become increasingly frustrated with the lack of backing from non-cartel producers after it made three output cuts this year totalling 3.5 million bpd.
It says non-members, which have been increasing output, should shoulder some of the burden of propping up prices by managing supply to demand, a strategy that has served the cartel well in the last two years.
Non-OPEC producers, who are less reliant on oil revenues than their OPEC rivals and comfortable with crude prices still double the $10 lows of early 1999, still do not share the cartel's urgency in seeing prices rise.
Some of OPEC's lobbying has drawn success. Mexico pledged on Thursday to cut exports by up to 100,000 bpd from January 1 to help shore up prices.
Mexico, which ranks in the top three suppliers to the United States, was the only non-OPEC producer to make significant cuts to output during the 1998/1999 price slump when the price of oil briefly dipped below $10 a barrel.
The Mexican Energy Ministry said its cuts were dependent on OPEC implementing reductions and on other non-OPEC producers, such as Russia and Norway, also restraining supplies.
Naimi was due to brief his Norwegian counterpart Einar Steensnaes by telephone on Thursday. A meeting between the ministers in the Norwegian oil capital Stavanger on Tuesday failed to extract any output pledge from Oslo.
But to OPEC's anger and disappointment, Russia has offered to reduce daily output of seven million barrels by a paltry 30,000 bpd, less than 0.5 percent -- a symbolic concession that amount to a slap in the face.
Moscow has lifted crude exports sharply in recent years, topping three million barrels a day last month, leaving OPEC to prop up prices while losing market share.
"OPEC is playing a dangerous game of bluff, and has to be prepared to follow it through," said Lawrence Eagles on GNI Research in market comments.
"They're playing with fire and it looks like they're to going to get their fingers burnt," said Gary Ross of New York consultancy PIRA Energy.
"It is a threat to Russia in particular which has seen the biggest growth in non-OPEC output in the past two years," said Mehdi Varzi of investment bank Dresdner Kleinwort Wasserstein.
A 1.5 million bpd cut by OPEC would take the group's production ceiling to 21.7 million bpd, excluding sanctions-bound Iraq, which would be the lowest level for 10 years and almost 19 percent below the 26.7 million bpd ceiling at the start of 2001.
"This is a mess," said Glen Murray of oil brokers Azure in France.
Reuters and the Associated Press contributed to this report.