Oil prices fall to $112 a barrel

Oil prices have fallen to $112 a barrel as fears Tropical Storm Fay would damage oil operations in the Gulf of Mexico eased.

Prices fell to $112 a barrel for light, sweet crude in New York, the first time oil has fallen under $113 a barrel since May. London Brent crude dropped 89 cents to $111.05 a barrel.

Also keeping oil prices down was yesterday's release of home builder data, which posted a record low, reinforcing the sense of economic gloom in the US.

However, energy analysts believe there are still pressures that will keep oil prices from sinking too far.

"With the news that UN inspectors will visit Tehran shortly in an effort to engender a greater cooperation over efforts to resolve the nuclear dispute between the West and Iran the focus may return to fears that any fresh escalation of this crisis will prompt supply concerns.

"The reticence of Russian forces to depart Georgian soil also adds weight to geopolitical elements in the market. These factors, together with the formation of a more powerful tropical system following Fay, will temper the response to further bearish global economic data," said Paul Harris, head of natural resources risk management for the Bank of Ireland.

The storm was blamed for 14 deaths as it swept through the Caribbean, hitting the Florida Keys yesterday.

Despite the devastation in Haiti and the Dominican Republic, the storm missed oil infrastructure in the region.