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After spiking to alarming levels just last week, globaloil pricesare suddenly in free-fall mode.

The dramatic reversal should bring relief to drivers as well as nervous central bankers very soon.

American oil prices plunged by 5.6 per cent to $US84.22 ($132) a barrel on Wednesday, marking the biggest one-day decline in a year.

So why did oil prices go from spiking to plunging?

Some argue that oil bulls, including hedge funds, had become excessively bullish.

Egged on by Saudi Arabia's supply cuts, they piled in to make bets that prices would go higher and higher — even though fundamentals didn't justify it.

"A lot of speculative pressure is being let out of the tyres," Matt Smith, lead oil analyst for the Americas at Kpler, said.

"It was stretched taut like a rubber band, hence a couple of bearish triggers caused price to snap back in short, sharp fashion," Smith said.

The latest trigger was a US government report released Wednesday that showed petrol inventories unexpectedly soared last week.

That in turn raised concerns about weakening demand for petrol