Bullish forecasters who predicted a few weeks ago that oil prices would soon top $200 a barrel may be feeling chastened. The price of US West Texas Intermediate is down almost 27 per cent from its July record of $147.27 a barrel, trading at $108 on Wednesday, a whisker above the five-month low it touched on Tuesday. Its decline should relieve some of the pressure on consumer prices and real living standards around the world. But the primary cause of the fall – fears of a global recession overcoming long-held supply concerns – is a reminder that the economic effects of the credit squeeze could yet be deep and long-lasting.

The scale and pace of oil’s retreat is all the more striking because of the disappointing supply response to earlier gains. Long before oil surged to its peak, Opec producers were already pumping as much as they could. Saudi Arabia, the cartel’s most powerful member and the only one with sizeable spare capacity, raised output in July to the highest in more than 25 years. But there are doubts over whether it can pump much more, while hawkish Opec members, notably Iran, are now talking of cutting production.