Oil giant BP has plunged to its first quarterly loss in seven years, and admitted it is to axe more than the 5000 jobs it previously signalled.

The diving oil price in the final months of 2008 left its fourth-quarter accounts awash with red ink, the company revealed today. But that failed to offset an earnings boom earlier in the year as the price of crude hit all-time records of more than $147 a barrel. So BP duly reported a 39% rise in full-year profits to a record $25.6 billion (£17.9 billion).

During its best-ever third quarter, including the months of record crude prices, BP was producing underlying profits of a staggering $109 million a day — $10 billion for the three months.

By the final months of 2008, when the price of crude had fallen by more than two-thirds, BP's underlying average daily profits had slumped to $28 million.

Fourth-quarter underlying profits — hit by a tax bill from its troubled Russian venture TNK-BP — came in at $2.6 billion, against the $3 billion expected by City analysts. That is 74% lower than the third-quarter performance, and almost 25% lower than in the same quarter in 2007.

However, that does not include net inventory losses of $5.9 billion, accounting for the sharp decreases in the value of BP's stocks from the opening of the quarter in October, when crude was trading at $100 a barrel, to its end on 31 December, when it had fallen below $50. That took the quarterly loss attributable to BP shareholders to $3.3 billion.

Nevertheless, chief executive Tony Hayward hailed the performance as a further step in his shake-up of the company since the fall of his predecessor Lord Browne.

But he promised further cuts in the layer-upon-layer of underperforming middle management he inherited, with more than 2000 jobs set to go in the next six months. He said BP's original plan to cut 5000 jobs would be “exceeded” after 3000 were axed in 2008.

“We have made good progress in slimming and simplifying the organisation while at the same time strengthening the front line,” he said.

“But we're not being complacent. In the current climate, we especially need to maintain the momentum we have established in the drive to make BP more efficient. The mantra in BP today is, Every dollar counts, every seat counts'.”

Hayward pledged to continue the company's large capital-expenditure commitments, spending up to $22 billion this year after $21.7 billion in 2008, as the supermajor aims to find a new barrel in reserves for every barrel it produces.

He said production is likely to grow again this year after output grew by 5% in 2008 to average 3.83 million barrels of oil a day. Average daily fourth-quarter production was as high as 3.945 million barrels after a number of new project start-ups including the giant Thunder Horse installation in the Gulf of Mexico, which is currently running at 200,000 barrels a day.

The quarterly dividend is 14 cents, making an increase in the shareholder payout for the year of 22% — or 44% in sterling terms because of the collapse in the value of the pound.