NEW YORK (AP) -- Oil prices were up slightly Friday after a sharp decline overnight as investors weighed the impact of the global economic slowdown on crude demand against oil producers' decision to slash output.
Light, sweet crude for February delivery was up 56 cents to $42.23 a barrel in electronic trading on the New York Mercantile Exchange by mid-afternoon in Europe. The contract overnight fell $2.94 to settle at $41.67.
The January contract, which expires Friday, fell $3.84 overnight to settle at $36.22 after dropping as low as $35.98 a barrel, levels last seen in June 2004.
In London, February Brent crude rose $1.08 to $44.44 a barrel on the ICE Futures exchange.
Investors have been discouraged by a stream of dismal economic news, highlighted by a string of company layoffs. Bristol-Myers Squibb Co., International Paper Co., Bank of America Corp. Western Digital Corp., Aetna Inc., and Newell Rubbermaid Inc., all announced massive job cuts in the past week.
The Dow Jones industrial average fell 2.5 percent Thursday.
"Every time you see the news -- about China, the U.S., Europe -- it's negative," said Clarence Chu, a trader with market-maker Hudson Capital Energy in Singapore.
JP Morgan on Thursday cut its 2009 price target for oil to $43 a barrel from $69.
Earlier this week, the 13-nation Organization of Petroleum Exporting Countries reduced its output quota by 2.2 million barrels a day in a bid to bolster prices that have slid about 71 percent since July.
But prices fell after the Wednesday announcement, largely because investors had already anticipated a cut of that size by OPEC.
"The cut had been priced in," Chu said. "If OPEC hadn't cut that much, the price would have fallen even more."
Some investors had speculated prices may have bottomed earlier this month near $40 a barrel, a level that was breached by the January contract on Wednesday. However, the February contract has stayed above $40.
"I wouldn't read too much into the January contract," Chu said. "I still consider oil above $40 because February was the most traded contract yesterday and today."
Echoing the opinion of many market participants, British Prime Minister Gordon Brown warned Friday that a failure to tackle volatility in oil prices could cost the global economy trillions of dollars.
Brown told an energy summit in London that the wild variation in crude prices was the "most pressing challenge" facing the international community and called for improved regulation of oil markets to stabilize prices.
Some analysts have said repeatedly that OPEC needs to implement some kind of pricing mechanism -- setting a target price wrapped around by a trading band, for example -- to ensure market stability.
"Wild fluctuations in market prices harm nations all round the world," Brown said. "They damage consumers and producers alike."
OPEC Secretary-General Abdullah El-Badri also acknowledged the problem.
"We all know that extreme oil prices whether too high or too low are as bad for producers as they are for consumers," El-Badri said in London.
Analysts also reiterated that disciplined action from OPEC members regarding their compliance with output cuts was key to market reaction and the development of oil prices in the near future.
"Perception of progress is key to the movement of the oil price in the next few months," KBC Market Services in Britain said in a report.
In other Nymex trading, gasoline futures rose 1.46 cents to 97.75 cents a gallon. Heating oil gained 2.22 cents to $1.3951 a gallon while natural gas for January delivery advanced 1.2 cents to $5.560 per 1,000 cubic feet.
Associated Press writer Alex Kennedy in Singapore contributed to this report.