US oil inventories fell less than expected last week, down by 1.6 million barrels to 295.3 million barrels, according to a US Energy Information Administration report.

In late morning trading on 24 July, the price of West Texas Intermediate oil was $125.15 on the New York Mercantile Exchange, more than $20 less than the all-time record of $147.50 set on 11 July. It had fallen to a seven-week low of $124.44 on 23 July.

Analysts at Barclays Capital say that lower demand is not likely to last, with US consumption expected to increase with lower prices.

However, rival investment bank Lehman Brothers says the deteriorating demand picture reinforces its belief that oil prices are approaching a tipping point. It forecasts oil to average $110 a barrel in the fourth quarter of 2008, and a further decline to $90 a barrel by the first quarter of 2009.

Barclays says the main upside risks are still geopolitical in nature, centred in particular around Iran’s external relations.

“For several years we have been signalling our view that the Iran situation has been set on a very slow path towards some non-benign outcomes, and we have seen nothing in recent months to suggest that this path is yet being diverged from,” the bank says.