Mounting stocks of crude and petrol are weighing on the oil price, which tumbled yesterday to $65 a barrel in London. The cost of a barrel has now reached a 17-month low and a consensus is emerging among Opec that a significant cut in output will be necessary to prevent a price collapse.

The price of Brent crude, which hit a 16-month low of $65 a barrel in New York, is drifting lower to levels that will begin to cause pain among all but the most efficient exporters of crude. At this level, Russia's revenues are below the $70 needed to balance its budget. It is already well below the $80-plus required by Iran and Venezuela to fund welfare payments in their ramshackle economies.

In Moscow, the tumbling price provoked signals of stronger co-operation between Russia and Opec and proposals that Russia create an oil reserve to act as a swing producer to balance supply and demand. Igor Sechin, the Russian Deputy Prime Minister, said that the Ministry of Energy would seek to create a reserve “to work more efficiently with prices on the market”.

Meanwhile, petrocurrencies are being hammered and havoc is being caused in the airline industry. Northwest Airlines, the US airline, announced a $317million (£195million) deficit yesterday, because of losses on fuel-price hedging contracts set up during periods of rising oil prices.

Norway's currency hit a record low yesterday, sinking to a little more than Nkr9 per euro. Investors have been selling the krone, which has been battered by the falling price of oil, the country's main export, and a desertion by investors of fringe financial assets.

The proposal that Russia develop a large reserve of crude to intervene on the markets emerged after a meeting between Abdullah al-Badri, the Opec Secretary-General, and President Medvedev. Russia joined forces with Opec seven years ago in an orchestrated reduction of crude supplies, but it has been suggested that the move was only theoretical since most of the cutback was compensated by a surge in refined oil product exports.

Oil specialists were sceptical yesterday about further concerted action to shore up the price, noting that Russia's output was already in decline. Nobuo Tanaka, executive director of the International Energy Agency, said: “We see worrying signs in some producing countries, including Russia, in the ability to invest enough to meet demand.”

High taxes have curbed investment in Russia's upstream oil exploration industry and output is expected to fall by 1 per cent this year.

Mr Tanaka said yesterday that the current oversupply would be only temporary if investment levels were not sustained, because of strong demand for fuel in emerging markets, such as China. “In the medium to long term, say by 2013, a supply crunch may happen. If we stop investing now, the problem will be more acute,” he said.

Signals of slowing industrial output in America and Europe are showing up in a sharp slide in demand for energy. In the United States, crude oil stocks rose by 3.2million barrels last week, half a million barrels more than expected.

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