THE September surprise has been the fall in the oil price. Since mid-July, a barrel of light sweet crude has dropped by more than 20 per cent from just over $78 to nearly $60.

This is the most important business development so far this year, holding out the possibility of an altogether more benign environment for British trade and industry in 2007. The surge in fuel costs has in the past year accounted for more than a third (34 per cent) of the total rise in manufacturing industry’s input prices, just less than a third (29 per cent) of the increase in inflation. The rule of thumb is that a 10 per cent increase in the price of oil knocks about 0.1 per cent off global economic growth. By implication, a 20 per cent fall could provide a boost to growth of at least 0.2 per cent.

Just as higher fuel prices have acted as a choke on investment and spending, the fall in the cost of energy promises to lift a burden on both businesses and consumers. Think of it as a tax cut, not from Chancellor Gordon but King Abdullah.

The mystery is that there has been little change to the fear factors that at the beginning of the summer pushed up the price of crude and prompted analysts to forecast Brent soaring past $100 a barrel. The reasons not to be cheerful remain: the Iranian nuclear threat has hardly disappeared; peace has not broken out in the Middle East; Iraq is hardly a safe haven for foreign investment; nor is Nigeria; Commandante Chávez and Czar Putin continue their arbitrary rule over national energy assets; the Peak Oil doomsayers have not gone away. So, what has changed?

Market forces are, finally, exerting their power over feelings. A global surplus of supply of 500,000 barrels per day (bpd) in 2005 has risen to about one million bpd in the first half of this year, dispelling the “fear premium” that accounted for as much as 20 per cent of the recent spike in the price. Inventories are rising — “stockdays” of crude have risen from 70 to 74 days cover. Oil refineries have been running flat out to satisfy summer petrol demand and have built up huge stocks. There is now a glut of heavier oil products, middle distillates and heating oil, which will depress the market this winter. At the same time, there are signs of a slight weakening of demand, particularly as growth falters in the United States.

Meanwhile, non-Opec supply is growing with estimates of about between one million and 1.8 million bpd of extra oil coming on stream in 2007, creating competition for Opec producers. The Centre for Global Energy Studies estimates that that high non-Opec growth could send the oil price falling below $50 per barrel by the third quarter of 2007.

That is, if Opec does not act. The future oil price is, once again, in the hands of the cartel. If the oil producers want to sustain the oil price even at today’s level, they will have to cut their output sharply this winter. But they have to agree what price they wish to defend: $60 a barrel? $50? The problem for Opec is that many of its members have grown accustomed to the extraordinary revenue. Venezuela, Iran, Iraq and Nigeria cannot easily afford to cut output. Algeria and Libya may talk a lot about a cut, but do little. It will be left, chiefly, to Saudi Arabia. The question is whether the Saudis, given the economic and demographic strains inside the Kingdom, can afford a $50 million a day loss in income.

When it comes to natural gas, bless the weather. The Met Office has been forecasting a mild winter, notwithstanding the possibility of a cold snap in January. A warm Christmas, as well as a huge increase in supply, have sent UK forward gas prices for this winter tumbling from 88p per therm in April to 61p this week.

Last winter’s price spikes and the brief emergency declared by National Grid were due to supply bottlenecks and frustration by UK gas shippers to secure supplies on the Continent. This year, the expectation is that more gas will be available to offset the steady decline in UK North Sea output. This week Norsk Hydro sent the first gas through Langeled, a sub-sea pipeline linking Norwegian gasfields to England. The Norwegians are planning to ship every molecule of spare gas down the Langeled pipe this winter. Some gas analysts predict the winter 2006 price could fall to 50p per therm. (The falling natural gas price should help to bring down electricity prices.)

Company finance directors and spendthrift shoppers alike have reason to hope that energy prices will be more manageable in the coming year, a function of the market economy rather than global anxiety. Oil may not fall back to its post-World War II average of $25.56 per barrel. But the surge was exaggerrated by huge volumes of hedge fund speculation. That would suggest the price will not halt here.

james.harding@thetimes.co.uk

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