Oil prices fell to their lowest level in nearly two months in London today after the global energy watchdog said the cost of crude may have peaked.
A barrel of Brent crude was trading at $43.50 – its lowest level since September 21 and significantly below the record $51.48 set last month.
It coincided with a report from the International Energy Agency (IEA) which said higher production by Opec had taken the steam off oil prices in the second half of October.
At the same time, production was restored to many rigs in the Gulf of Mexico after four hurricanes tore through the region in late summer and early autumn.
“Higher stocks, better sweet crude supply and lower forecast GDP growth suggest a seasonal peak,” the IEA said.
“But sustained near-capacity operations are needed to ensure ample winter heating oil supply.”
Analysts played down the chances of a sustained fall in oil prices, pointing out that the market was being driven by speculators and demand remained high.
The latter point was supported by the IEA which maintained its forecast for global demand for this year and in 2005.
Paul Horsnell, head of energy research at Barclays Capital, said prices had fallen “too far, too quickly” and it was wishful thinking by the IEA to talk of a peak.
The industry remained overstretched and stocks of heating oil were particularly low. This made the sector vulnerable to a cold snap in markets such as the north-western United States, Japan, South Korea and Germany.
“There is nothing in the market to justify the recent sell-off that we’ve had,” Mr Horsnell said.
“There is a strong chance of another move up from this point as everything is running at pretty much full capacity to meet demand.”
According to the IEA, Opec output was likely to stay close to capacity during November at a time when fears of possible supply disruptions remained high.
Unions are planning a general strike in Nigeria next week, while the US-led assault on the Iraqi city of Fallujah have heightened concerns over Middle East oil supplies.
At the same time, the long-running dispute between authorities in Russia and oil producer Yukos over unpaid taxes continued to overshadow the market.
Commerzbank analyst Steve Turner said: “If we did see further supply disruptions then I suspect we haven’t seen the highest oil prices of the year.”
The cost of US light crude followed Brent lower today, trading below 47 US dollars a barrel after hitting a high of $55.67 in the middle of October.