Light, sweet crude on the New York Mercantile Exchange - the benchmark oil price - stood at about 125 US dollars a barrel today, well down on the 147 US dollar record of a fortnight ago. Prices have fallen in six of the last seven sessions.

Oil analyst John Hall, of John Hall Associates, said he hoped to see oil fall further to the 110 US dollar a barrel mark in the coming weeks as supply and demand "fundamentals" returned to the market.

He said: "I wouldn't say the oil bubble has burst, but it is leaking. We have a situation now whereby US demand for oil is falling.

"There has been a reality check where people have looked at the situation and said 'we cannot live with these prices'. If it's left to fundamentals alone it would come down to the 110 US dollar a barrel mark."

Evidence that Americans are cutting back on fuel has come from the US Energy Department's Energy Information Administration, which showed that petrol demand over the four weeks ended July 18 was 2.4% lower than a year earlier.

Data also showed that US petrol stockpiles jumped 2.9 million barrels last week, far more than analysts predicted.

Analyst Victor Shum from Purvin & Gertz in Singapore said: "This is the summer driving season and so there's no question that the data shows demand destruction in the US."

Oil prices at the 125 US dollar a barrel level are still 30 per cent higher than they were at the start of the year. Concerns over global supplies thanks to a series of political crises involving oil-rich nations such as Nigeria and Iran have been blamed for the virtually relentless rise in oil prices before the recent fall.

But Mr Hall warned that further oil falls could tempt speculators back into the market and drive prices up once more.

"Something will probably happen to get the market excited again," he said.
"We are going to get down to some kind of level where people will come back into the market."

This week saw a price war break out on the forecourts of supermarket petrol stations. Asda, Morrisons and Sainsbury's all announced cuts of between 3p and 5p a litre.

Another beneficiary of the lower oil price has been British Airways' share price, which has risen 25% in the past week.