If the Opec cartel needed any incentive to live up to its grandiose production-cutting gesture, it got a kick in the pants yesterday from the oil market. Only hours after the official communiqué was delivered in Algeria, the price of US Light crude fell to a four-year low of $40 per barrel.

This is disastrous for Opec and its members which need much higher prices, to maintain lavish social spending programmes in their one-trick economies.

If benchmark quality crudes such as Brent or West Texas Intermediate are selling in the low-$40s then you can bet that Opec's big products, such as Arab Light and the heavy viscous crudes sold by Venezuela are selling well below $40 per barrel.

Cynical oil traders in London and New York are not impressed by Opec pronouncements. The number — a cut of 2.2 million barrels per day — is big but oil traders want to see the evidence and that will not be available until Saudi Arabia notifies its Far Eastern customers of reduced allocations for lifting crude from Saudi terminals in January.

To make matters worse, Opec is rehearsing again the variety show of the late 1990s when it appeared on stage with a clutch of reluctant and rival producers in an effort to arrest a crude price collapse.

Then, Mexico, Norway, Russia and Oman agreed to take part in a co-ordinated cut after crude fell to $10 per barrel. It was a token gesture at a time when the Russian economy was on its knees. Moreover, most of the Russian crude “cut” was thought then to have found its way back into the market in the form of diesel and fuel oil exports.

This time, Azerbaijan has joined the party and together Russia and its former Soviet partner are promising a 600,000 barrels a day reduction but we don't know from what level the cut is to be measured. Russian oil exports have recently fallen sharply due to heavy export tariffs which have made the business of shipping crude to Europe uneconomic.

We are in uncharted waters; the fall in the price of crude oil since July's peak of $147 per barrel is unprecedented but so was the crash to $10 per barrel in 1998. The problem with deeply traded commodities, such as oil, is that small imbalances in supply and demand create huge price changes.

What we do know is that the current price is uneconomic for most producers and if it remains at these levels, there will be widespread economic and social distress in countries such as Iran, Mexico, Nigeria and Venezuela.

Economic collapse in such countries and the ensuing social unrest is not desirable, even for hawkish Washington Republicans. Even more undesirable is a collapse in oil investment, a supply squeeze followed by a surge in the price of crude to even greater heights.

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