Jitters over the future of the global economy sent the oil price swinging down to multi-month lows and bouncing back up again just as quickly yesterday, ahead of a much-anticipated economic policy statement from the US Federal Reserve.
After opening at around $103 per barrel, Brent crude tumbled below $100 for the first time since early February and then jumped above $105 in late-afternoon trading.
Meanwhile, West Texas Intermediate – the main New York contract – slumped to a shade above $75, itslowest level since September, and then rallied to a high of $83.05.
The see-sawing oil price followed a similar trajectory to global equity markets, which finally settled to a nervous calm in the afternoon after the turmoil in response to the downgrading of the US credit rating and the ongoinguncertainty over the sovereign debt crisis in the eurozone.
Fears that the global recovery is stuttering were further stoked by reports of Chinese inflation running at 6.5 per cent in July, raising the spectre of monetary tightening in one of the world's fastest-growing economies.
The oil price bounced back in theafternoon as traders looked to a boost to the US economy from FederalReserve chairman Ben Bernanke after yesterday's meeting of the central bank's Open Market Committee.
But even with the recovery in prices, oil is still some $20 down from its 2011 peak. Brent crude hit $126.65 in early April as global growth boomed, the Arab Spring worried markets, and uprisings turned off production in Libya.
In Britain, the biggest impact was to send petrol prices soaring to a record high of 143.04p per litre in early May.
Oil was rising so sharply that in June, Saudi Arabia mooted plans to ease soaring prices by increasing output by the 12-strong Opec producers' cartel, of which it is the leading member.
The move was roundly rejected by other Opec members including Iran and Venezuela. And such opposition now looks increasingly justified.
Far from needing to increase production, Opec yesterday revised its forecasts for oil-demand growth for this year and next downwards, blaming slower economic growth in the world's energy-hungry developed economies.
"Dark clouds over the economy are already impacting the market's direction," the cartel's monthly report concluded. "The potential for a consequent deterioration in market stability requires higher vigilance and close monitoring of developments over the coming months."
In response, Opec has issued updated estimates for 2011 which cut demand growth by 150,000 barrels per day (bpd) to 1.21 million bpd, taking total dailydemand to 88.14 million barrels. The forecasts for 2012 were cut by 20,000 bpd to 1.3 million bpd, leaving dailydemand at 89.22 million barrels.
Falling oil prices add to yawning UK trade deficit
The $20 fall in the oil price since April may help ease petrol prices but it is not all good news for the British economy, as evidence of the widening trade deficit published yesterday shows.
The gap between Britain's imports and exports yawned to a 2011 high of £4.5bn in June as a 2.8 per cent drop in exports outpaced a 1.5 per cent fall in imports, according to the latest figures from the Office of National Statistics.
The increase was driven by a boost to the goods trade deficit – from £8.5bn to £8.9bn – which in turn rested on a series of "erratic" items, the most significant of which was oil exports, the ONS said.
Excluding oil and erratic items, the deficit narrowed by £500m to £7.7bn in June, as the volume of exports fell by 2.7 per cent while imports fell by 5.8 per cent.
"The trade deficit was worse than expected, exacerbated by lower oil exports," Alan Clarke, the chief UK economist at Scotia Capital, said. "Imports are falling – understandable given that domestic demand is going nowhere so we should be sucking in less imports – which is good for GDP growth. Unfortunately, weakening prospects in the UK's main export markets cast doubt on the upside for export growth in the period ahead."