Oil prices are falling back to levels not seen since the end of October, sharply reducing the risk of oil hitting $100 a barrel.

Prices slipped below $87 a barrel today as increasing stocks of oil in the US supported Opec's decision not to change output levels this winter.

US crude futures dipped 54 cents to $86.95 this morning, after falling for the third consecutive day. US oil prices have fallen more than 12 per cent below the record of $99.29 on November 21. London Brent crude fell 49 cents to $88.00.

While the cost of oil is falling, the effect is unlikely to be noticed at the petrol pump for weeks to come. Having broken through the psychologically symbolic £1 a litre barrier, the AA is pessimistic that petrol prices will fall back below that level without a major price correction.

"There was some pent-up increase prior to the £1 a litre breach, that didn't get passed on. This means that commensurate reductions are less likely," a spokesman for the AA said. "Anything around $90 a barrel is still in record territory," he added.

Oil initially surged more than $2 on Wednesday after Opec, which controls more than a third of world supply, rejected calls from consumer countries to boost output and said that it would not revisit its decision until February.

Opec decided against a proposal to lift production by 500,000 barrels per day from the cartel's current daily output of 27.25 million barrels. The producers argued that the global market for crude oil was "well supplied".

US crude stockpiles fell to their lowest level in more than two years last week, as fog disrupted the pace of imports into the Gulf Coast. But stocks rose again in the Cushing, Oklahoma delivery point for US crude futures, while inventories of refined fuels rose by much more than expected.

Stocks of distillate fuels, which include diesel, also rose by 1.4 million barrels despite an anticipated decline and gasoline inventories rose 4 million barrels.

Rising stocks have raised the question of whether the credit crunch is finally having an impact on economic growth in the US and leading to a slowdown in oil demand. “In my opinion, we are already in a recession, and you can see this in the demand for gasoline,” Jim Ritterbusch, president at Ritterbusch and Associates, told Reuters.

There are also fears that the high price of oil is finally taking its toll on consumers.

Oil prices have been sliding since late November, taking the sting out of an increase of more than 40 per cent since August that put crude within sight of $100 a barrel.

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