After a year of historic price highs, raw oil now costs less than bottled water.
Australians have cut back their petrol consumption by 6000 barrels a month, pushing prices down to their lowest since early 2004.
World oil was trading at $US43 ($65) a barrel during last week, now closing in on its long-term average range of $US25 to $US35 a barrel, adjusted to inflation, not seen in almost half a decade.
With 158 litres to a barrel of oil, the raw product has dropped below the price of the cheapest bottled water - a 12-litre bottle of Northbrook water retailing for $4.99 at Aldi - 41cents compared to 42 cents a litre.
Figures from the International Energy Agency show that demand for petrol products in Australia has been falling since January, as high interest rates and high living costs began to take their effect.
The most recent figures for October, show demand has fallen to about 327,000 barrels a month, down from 333,000 barrels in January.
CSIRO modelling estimated that if oil prices were sustained at $US100 a barrel it would have restricted economic growth by 3 per cent - knocking Australia firmly into recession territory - relative to prices at $US35 a barrel.
The fall in consumption has been a short-term boon for the environment but it has come at the expense of the fledgling biofuels industry.
Paul Graham, a senior adviser in the CSIRO's Energy Futures project, estimated that the sharp price rises resulted in a de facto carbon price of upwards of $200 a tonne, much larger than the $23 to $32 range that Treasury has predicted for the introduction of trading in mid-2010.
"All the movements in the oil prices are much larger than the future carbon price," he said. "When you see a rise of upwards of 50 per cent [in petrol prices], that is obviously quite substantial. We know that kilometres travelled did flatten out as that began to take effect."
The CSIRO has predicted that pure unleaded petrol products by 2030 will be almost entirely replaced with ethanol blends and diesel vehicles that can achieve greater fuel efficiencies.
But Mr Graham said that move will be delayed - at least in the short-term - as oil prices continue to fall.
"Certainly expectations of future prices play a big role and there's a big dip since the financial crisis has unfolded," he said.
"But a lot of these [forecasts] are long-term and business, too, will take a long view.
"At the moment, the risk for major investment in alternative fuel products is very high so low prices would tend to delay those investments while there is volatility."
Bruce Harrison, chief executive of Biofuels Association of Australia, said the price falls have put a huge strain on refining margins just as the industry attempts to boost production by more than 20 per cent to 245million litres a year.
"Certainly the fall in oil prices makes it harder for every one in the industry. Everyone's margins are down," he said. "Our view is that the world economy starts to pick up, demand will pick up."
But experts have warned that the price falls may be short lived. The US Energy Information Administration predicted prices to stabilise at around $US63 throughout 2009.
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