US oil prices have dropped more than $6.50 a barrel this evening, the biggest drop in dollar terms since 1991, as the market believed that the US oil industry would recover quickly from Hurricane Gustav.

The easing fears that the storm would disrupt energy supplies in the world's biggest consumer allowed the market to focus again on factors like slowing world energy demand and a rising US dollar.

US crude fell $6.60 to $108.86 a barrel, bringing prices down nearly $40 from their peak in mid-July. London Brent fell $1.70 to $107.71.

The drop in US prices, calculated against last Friday's close due to the US holiday on Monday, was the biggest in dollar terms since the start of the first Gulf War in 1991 and the biggest in percentage terms since 2004.

Oil and other commodities have been falling since mid-July due to slowing world energy demand and a rebound in the dollar, which weakens the purchasing power of buyers using other currencies.

Oil traders had initially expected that Gustav, the first big threat to US energy supply since 2005, would stem oil's decline by interrupting supplies.

Virtually all energy production in the Gulf of Mexico, which accounts for a quarter of US oil output and about a third of US oil refining capacity, was either shut or slowed down in the wake of the storm. But early indications revealed no major damage - a signal that production could rebound quickly.