LONDON (AP) — BP PLC, the second-largest European oil company, said yesterday it swung to a steep loss of $3.3 billion during the fourth quarter of 2008 as sliding oil prices hit revenues hard.

The company's loss during the October-December period was well below the $8 billion profit in the third quarter and a $4.4 billion profit in the same period in 2007.

For the full year, BP said net profit was $21.2 billion, up slightly on 2007's $20.8 billion.

The drop in the fourth-quarter performance was due to the collapse in oil prices. In mid-July, oil prices were around $147 a barrel. Since then, fears about the global economic outlook have pushed oil prices down to around $40 a barrel.

When oil price changes on unsold inventories are stripped out, BP remained in the black during the fourth quarter. So-called replacement cost profit — a key measure for oil companies — was $2.6 billion in the fourth quarter of 2008, down on 2007's equivalent of $3.4 billion.

Though the replacement cost profit during the period was hefty, it was at the bottom end of market expectations. Analysts were looking for replacement cost profit to be around $3 billion during the quarter.

BP blamed currency changes, in particular the fall of the euro and the pound against the dollar, as well as higher tax bills in Russia, for the weak performance. In addition, the company said it took a $700 million one-off loss related to its Russian joint venture, TNK-BP, which was dogged by political infighting last year.

For the year as a whole, replacement cost profit rose 39 percent to a record $25.6 billion.

BP said it will pay a quarterly dividend of 14 cents a share. Though that was up on the 13.25 cents delivered a year ago, the dividend was unchanged on the previous two quarters.

The markets gave a thumbs down to BP's results, sending the shares down as much as 5 percent at one stage. By mid-afternoon London time, BP's share price was 1.3 percent lower at 478.50 pence.

"BP looks like a company that may have temporarily lost its way as it reported its first quarter loss in seven years," said Manoj Ladwa, a senior trader at ETX Capital in London.

With the oil price so volatile, BP said it will continue to focus on cutting costs.

"We need to continue the drive to make BP more efficient," Tony Hayward, the company's chief executive, told a briefing of analysts.

Under Hayward, who took the helm in 2007, the group has been looking to boost efficiency to close the gap on Royal Dutch Shell, Europe's largest oil company, with measures such as 5,000 job cuts in order to streamline the business.

The pressures facing oil companies have mounted in recent months as the price of oil has dropped. In addition, Hayward said the global economic slowdown will likely mean that the demand for oil will be 500,000 barrels a day lower in 2009 than in 2008.

In his presentation, BP's Hayward said the company breaks even in 2009 with oil prices between $50-60 a barrel.

"At BP, we've been managing volatility for 100 years in good times and bad times," Hayward said.

Although exploration and production profits are likely to suffer from the lower oil prices, the firm said it has improved the efficiency of its refining operations in the US.

BP has been dogged by problems at its US refineries, but has rebuilt capacity at its Texas City and Whiting sites. Refining availability rose to 91 percent in the last three months of 2008 — the highest level for three years.

Collins Stewart analyst Gordon Grey said BP has demonstrated a solid recovery from its recent operational problems, but warned of significant challenges ahead "in terms of the visibility of its growth post-2009 and its susceptibility to prolonged sub-40 dollars crude prices."