On Friday, world oil prices climbed to nearly $US53 a barrel, recovering from 19-month lows. New York's main oil futures contract, light sweet crude for delivery in February, gained $US1.11 to close at $US52.99 a barrel. In London, the price of Brent North Sea crude for February delivery rose $US1.25 to settle at $US52.95 a barrel.

The belief that the Organisation of Petroleum Exporting Countries would be able to support the price at $US60 or so has proved as misplaced as last year's consensus that the next stop after August's peak of $US78.40 was $US100 a barrel. Now the smart money is looking at $US50 or even lower. The behaviour of the oil price has taken almost everyone by surprise. A year ago, the ugly stand-off between Russia and Belarus and nationalist sabre-rattling by Hugo Chavez in Venezuela would have sent the price soaring. But the downward pressure is so great that even Vladimir Putin has been out-growled by the bears in the financial markets. The first whiff of an apparent suspension of hostilities between Russia and its satellite put the skids under the price again.

Most oil experts are pointing the finger at the weather and investors have developed a new fascination with websites like that of the National Oceanic and Atmospheric Administration. There they have learned that not only was 2006 the warmest year on record in the US but that, unusually, winter has failed to show up everywhere in the northern hemisphere. Merrill Lynch commodity strategist Francisco Blanch says: "This winter has so far been substantially warmer than normal, even when factoring in global warming." He calculates that "synchronous global warm winter weather" has reduced oil demand by 38 million barrels a day during the first half of winter.

According to the Missouri-based forecaster Weather Derivatives, demand for fuel in the north-eastern states of the US, which account for 80 per cent of American heating oil consumption, will be 24 per cent lower than normal this week. The US Energy Information Administration has cut its forecast for global oil demand by 210,000 barrels to 86.3 million barrels a day. The effects of the warm weather have been compounded by a manufacturing slowdown in the fourth quarter and the continuing decline in construction.

Lower demand is only one side of the equation. On the supply side, too, pressure is easing. With countries such as Angola, Brazil, Canada and Russia producing an estimated 1.8 million new barrels every day, even a global economy growing at 4.4 per cent a year can't find a use for all the oil sloshing around the system. Non-OPEC oil output was 3 per cent higher than a year ago at 51.7 billion barrels in the last three months of 2006, piling the pressure on the OPEC cartel to reduce its own production to keep the market in balance.

OPEC did agree to reduce its output by 1.2 million barrels a day in November, with a further 500,000 cut pencilled in for next month. But the producers have discovered that calling for a cut and having the discipline to see it through are two different things. In December, OPEC countries pumped about 700,000 barrels of oil a day more than they had agreed. Even the most compliant nations - Saudi Arabia, Kuwait and the United Arab Emirates - held back on 20 to 30 per cent of their promised cuts. The most vocal price hawks, Indonesia and Venezuela, simply left the spigots gushing. Merrill Lynch's Blanch sees potential for the oil price to start rising again if the situation deteriorates in the Middle East. "While the current supply and demand trends suggest that there is relatively little upside pressure to crude oil prices, the geopolitics of energy is not getting any better," he says.

He believes pressures arising from Iran's nuclear program will continue to make it hard for the country to attract the foreign capital it needs to expand its oil and gas output. The unwillingness of America's new Democrat Congress to sanction further financial or military commitments to Iraq should hamper improvement in production there. If Israel or the US launched an attack on Iran, all bets would be off.

But Tony Dolphin, an economist at Henderson Global Investors, thinks downward pressure is unlikely to ease off. "It depends on the production of non-OPEC countries, which looks like being quite strong," he says. "If OPEC has to cut, the risks are on the downside." The implications for other financial markets of oil remaining below $US55 could be significant, Dolphin says.

"It would be good for global growth, with more spending power for importing countries. A soft landing would be more likely," he says. "But if the oil price stays down, the idea of interest rate cuts will disappear - and that could create nervousness and, ironically, be bad for stockmarkets."

So although a cold snap may kill off those overoptimistic cherry trees, it could soothe the frayed nerves on the trading floor. Telegraph, London