Oil prices fell below $100 for the second day after US crude inventories declined by 5.9 million barrels compared with last week when Hurricane Gustav threatened to wreak havoc on oil production around the Gulf of Mexico.

Brent North Sea crude fell $1.92 to $98.42 as details of US crude supplies emerged, reversing earlier gains made on a decision by Opec, the 13-member oil cartel, to cut production by 520,000 barrels a day.

Yesterday, oil fell to $99.56 a barrel — the first time in five months that crude fell below the pyschologically significant $100 a barrel level.

Meanwhile New York’s main contract, light sweet crude for October delivery, was trading at $104.02.

Although facilities around the Gulf of Mexico escaped unscathed from Hurricane Gustav, several large oil companies evacuated sites and suspended production until the storms had subsided.

Commenting on Opec’s decision to cut supplies, Chakib Khelil, president and Algerian's Energy Minister, said he did not expect the oil price to increase as a result of the cut to supplies.

He said: "My hunch is probably the price will still be going down, despite the decision that we made.

“I don’t think this will affect the consumers in any way because, first of all, there’s an oversupply. Everybody agrees on that."

Most analysts had expected the producer cartel to maintain formal targets at its meeting in Vienna, although some had suggested Opec would discreetly agree to rein in production by cracking down on output by some members, mainly Saudi Arabia, which are pumping above their quota.

The cartel is currently thought to be producing about 790,000 barrels per day (bpd) more than its official ceiling of 29.67 million bpd.

Analysts said the group had sent a clear message to markets, which had been battered by a recovery in the US dollar and fears of a global recession and slump in demand for oil.

“It certainly shows that Opec is not afraid to defend a $100 price level,” Jonathan Kornafel, Asia director at US-based options trader Hudson Capital Energy, said.

Robert Laughlin, analyst at MF Global, said: "This accord will provoke a rally in the short term but will not be enough to inject long-term bullishness into structure. Prices will come lower and Opec ministers are well aware of this."

The calculations of the new target were complicated by the inclusion of new members and the removal of Indonesia, which asked that its membership be suspended. Some analysts questioned whether the cuts would fully materialise without details on which countries would be expected to curb supply.

Oil is now trading over 33 per cent below the record $147.27 per barrel reached on July 11.

However, the surging dollar, propelled by the US Government's bailout of mortgage financiers Fannie Mae and Freddie Mac, countered the rise in oil.

The dollar is now at its highest level against the euro since October 2007, prompting investors to dump commodities from corn to copper and move into the currency.

Opec members, including Kuwait and the United Arab Emirates, had called for no change in output levels though Algeria, Iran, Venezuela and Libya were in favour of a cut to production.

The cartel, which produces about 40 per cent of world crude, will meet again in Algeria on December 17.

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