Oil prices dipped below $100 a barrel on Tuesday night as Opec avoided cutting the cartel's output and concerns about the impact of Hurricane Ike on crude production in the Gulf of Mexico receded.

As Opec oil ministers met for a policy meeting in Vienna, Brent North Sea crude for delivery in October stood at $99.50 — two thirds of its July peak. It is the first time since April that oil prices have fallen below $100, almost reversing a spectacular rally that drove them from less than $80 a year ago to a record of more than $147.27 on July 11.

The latest dip in price came after Chakib Khelil, the Algerian Energy Minister who is also Opec's president, said that the cartel was “going to stay with the level of production where we are now”.

The recent decline has delighted consumers as well as central banks eager to rein in inflation, but it has left experts pondering what is driving the market and where prices are likely to head next.

According to John Hall, an independent oil analyst, financial speculators played a minor role in the rally earlier this year, but the increase was prompted primarily by tightness in global oil supplies that followed Opec production cuts in 2007 and a growing thirst for energy from the booming economies of China, India and the Middle East.

Spiralling prices, accompanied by a rapidly weakening global economy, eventually triggered an equally dramatic slide as it became clear that global demand for fuel was waning.

As prices at the pump soared, consumers responded by adjusting their behaviour, using fuel sparingly, shifting to public transport and scaling back on unnecessary flights. The US Transportation Department said last month that Americans drove 12.2 billion miles less in June compared with a year earlier, a fall of 4.7 per cent. It was the eighth consecutive monthly drop. With airlines grounding flights and sales of gas-guzzling cars in freefall, oil demand in Western countries is set for its biggest fall in 25 years this year, according to the International Energy Agency.

Their latest figures indicate that demand in the Organisation of Economic Co-operation and Development (OECD) countries will average 48.6 million barrels per day this year, down 620,000 barrels from 49.2 million in 2007. That represents the largest fall since 1983, when demand fell by 684,000 barrels per day.

Demand is also weakening in the developing world, albeit at a slower pace, largely because rising prices this year forced the governments of countries including China and India to ease fuel subsidy regimes that for years had shielded domestic consumers.

The falling price was amplified by Saudi Arabia's decision in May to pump crude at its fastest rate since 1981 - an extra 500,000 barrels per day. An exit of speculative money from the oil market by big hedge funds and investment banks compounded the decline.

“I think it's safe to say that petrol prices have now peaked,” Andrew Howard, a spokesman for the AA said. He was confident that UK drivers could breathe a temporary sigh of relief. The average cost of a litre of unleaded petrol in the UK has fallen from a high of 119.7p on July 17 to 112.8p on Monday, diesel has fallen from 133.25p to 124.3p, but prices remain much higher than a year ago, when they stood at 95.1p for petrol and 96.5p for diesel.

Nevertheless, the recent volatility in the oil market has prompted speculation about future prices. Colin Smith, of Dresdner Kleinwort, believes that Opec's decision to leave its production quota on hold is likely to accelerate the fall in prices.

At the start of Opec's meeting in Vienna yesterday, Ali al-Naimi, the Saudi Oil Minister — perhaps the most powerful figure in the global oil market — indicated that he was happy with oil at the present level of about $100, reiterating the long-held Saudi view that high prices risk undermining long-term global demand by forcing consumers to seek alternative fuels.

However, it is not clear how far Saudi Arabia and the rest of Opec, the 13-country cartel that controls 40 per cent of global oil production, would allow prices to overshoot before intervening with a cut in production to put a floor under prices. Analysts believe that it is unlikely that prices will fall far below $80 without action from Opec, whose more hawkish members, including Iran, are already talking up a cut. The group, which is likely to meet twice more before the end of this year, has other options open to it to control prices. It could seek to massage prices higher with an informal cut, achieved by encouraging member countries to stick more rigidly to their production targets. Opec produces about one million barrels more than its official quota because some members ignore their own quotas.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive