Oil price lowest in three years

Oil prices have fallen below $50 a barrel for the first time since May 2005 amid fears of a recession and expectations that demand will drop. US light sweet crude fell to $49.75, while London-traded Brent crude fell to to $48.90 a barrel. The price of oil is around two-thirds cheaper than in July, when it hit a record above $147 a barrel. As economic slowdown has destroyed fuel demand, oil companies face the prospect of storing millions of barrels of unwanted oil. The falls on oil have mirrored weakness on equity markets, which dropped again today when European stocks hit their lowest level since March 2003.

The decline in the value of oil is good news for motorists and consumers. The price of petrol is likely to fall and utility bills will also come down if the price remains low. The fall is also likely to reduce inflationary pressure and makes more interest rate cuts more likely. Investment banks such as Deutsche Bank have warned that oil prices could fall to $40 a barrel early next year as the credit crisis hits the real economy, with the economic slowdown spreading from the US and Europe into emerging markets such as China.