Oil plummeted on Wednesday, with one contract briefly trading in the $30s, despite a large 2.2 million barrel production cut by the usually-influential Organization of Petroleum Exporting Countries, commonly known as OPEC.

However, continued weakness in the U.S. dollar gave a boost to precious-metal commodities, with gold moving higher by more than $25 an ounce.

Commodity Markets

Crude oil for delivery in February dropped by $1.94, or 4.13%, to $44.78 a barrel at the 2:30 p.m. preliminary close in New York.

January crude futures, which are the less-liquid crude contracts because they will close on Dec. 19, fell by $3.54 a barrel to $40.06. The contract fell to a fresh four and a half year low of $39.88 a barrel in late afternoon trading. 

The decline in crude comes despite OPEC's announcement it would cut production by 2.2 million barrels, on top of the two million barrels cut in September, for a total cut of 4.2 million barrels - its largest cut in its history. The cut brings the cartel's daily supply target quota down to 24.85 million barrels a day.

While the headline production cut was 4.2 million barrels, the cartel had already announced a production cut of 2 million barrels in September.

It was genuinely expected that the most OPEC would be able to cut would be two million barrels a day because of massive pressure from the cartel’s largest member Saudi Arabia.

However, because of the recent massive decline in the price of crude and the problems that may cause to the budgets of oil-rich nations, there’s been increasing pressure to cut even more. Venezuela, Iran and non-OPEC member Russia had all lobbied for large cuts in production.

A cut in production is considered a promise in a cut in production. Oil countries can and often do continue to produce more oil than the supply targets.

Steven Schork, who writes the Schork Report and is an oil industry analyst, said that oil traders are selling oil today because they believe the cuts came to late in the face of a slumping economy combined with the belief that some OPEC members will not keep their promises to cut production.

"Iran, Nigeria, Venezuela - they all have to produce oil at any cost," Schork told FOX Business. "There's significant doubts of compliance with these cuts."

Venezuela is one country that has lobbied hard for massive production cuts from the other member OPEC countries. The Hugo Chavez-led country needs between $90 to $95 a barrel oil in order to meet is current budgetary needs, compared with a OPEC member like Qatar or Saudi Arabia, who need oil to be above $20 a barrel to meet their budgetary needs.

Schork expects a 60-70% compliance rate with OPEC's production cuts, bringing the real net production reduction to approximately 1.5 million barrels a day.

The main reason for the cut in production is to deal with the massive decline in the price of crude oil, which touched $147 a barrel this summer. OPEC President Chakib Khelil told reporters in Oran, Algeria, where the cartel's meeting was held, that a fair price for oil was in the range of $70 to $80 a barrel. 

Oil traders also got the U.S. Energy Department weekly crude inventory numbers, which showed a 525,000 build in oil stocks last week. Analysts surveyed by Dow Jones were looking for a 100,000-barrel build in crude stocks.

Natural gas futures closed lower by 8.3 cents, or 1.43%, to $5.72 per million British thermal units.

Precious Metals 

Gold closed up higher by $25.80, or 3.07%, to $867.50 an ounce in Wednesday trading, as the precious metal continued to climb after the Federal Reserve cut rates to near zero on Tuesday. It was the highest settlement date for gold since Oct. 9.

Silver, another closely-tracked precious metal, jumped by 71.5 cents, or 6.7%, to $11.389 an ounce.