Fears over spluttering global growth pushed oil into bear-market territory as average petrol prices hit their cheapest level for nearly four years.
International Monetary Fund warnings over a stalling European economy and emerging market risks, as well as a supply glut inspired by the US shale boom, have hammered oil prices since the end of June.
Brent crude fell more than a dollar to a 27-month low of $90.76 at one point, down more than 20 per cent from the June high of $115.06.
Motorists are feeling the benefit of the recent drops on the forecourt as the average cost of a litre of petrol dived to 127.13p on Monday, according to the AA motoring organisation. This is the lowest since January 2011 when prices were inflated by the Chancellor’s VAT hike to 20 per cent.
Motorists have been helped by pledges from the likes of Tesco and Sainsbury’s to cut up to 5p a litre off petrol. Asda has also cut prices.
But an AA spokesman said further big reductions were dependent on international markets and producers were unlikely to tolerate lower prices forever: “It may be a false dawn to say low prices will be around for a while but we should enjoy it while it is there. Arguably the forecourts should do more. Where there is an opportunity to increase margin they will.”
The latest tumble in the oil price comes despite turmoil in the Middle East as the West launches air strikes against Islamic State.
But alongside the economic warnings from the IMF, dampening demand, US oil output has more than doubled since September 2008 and is at its highest level for nearly 30 years.
Disrupted Libyan supplies are coming back to the market while Saudi Arabia, the world’s biggest exporter, cut prices last week. Cartel Opec could yet decide to cut production in November, but it accounts for less than half the market.
Deloitte chief economist Ian Stewart said the price was likely to “go down or track sideways”. He said: “What we have been struck by is that in the face of a lot of negative shocks the oil price has continued to soften.”
Shore Capital’s analyst Gerard Lane said oil prices could even hit $70 a barrel, although this level would be unacceptably low to Middle East producers and could make some shale projects uneconomic.
“The odds on that are rising primarily due to the actions of the Saudis. Instead of cutting production, they are cutting prices,” he said. The prices feeding through into low UK inflation ease the pressure on the Bank of England to raise interest rates, he added.Reuse content