Motorists received a new year's gift today after Asda sparked a petrol price war by announcing a cut in the cost of fuel across all its petrol stations due to falling oil prices and unseasonably mild weather.

The supermarket cut prices of unleaded petrol and diesel at its 167 forecourts, with diesel seeing the bigger fall.

Diesel prices, which normally increase at this time of year on rising demand for oil to heat homes, fell by 1.5p a litre, to 89.9p. This was the lowest level for more than a year, Asda said. Unleaded petrol saw a more modest drop of 0.2p, capping the price at 85.9p a litre.

Asda said their credit and store cardholders would enjoy an extra 2p a litre discount when paying with their card.

A combination of mild weather and lower crude oil prices prompted the supermarket to cut prices.

The American north-east in particular has had an unseasonably warm winter, helping to reduce demand across the US, which is a large consumer of diesel fuel in the form of heating oil.

Meanwhile, the price of crude oil has tumbled from the record highs of more than $78 a barrel hit during last summer when petrol rose to just under £1 a litre. But so far this year crude oil has fallen, with US crude oil futures falling by $2 on Thursday, capping the biggest two-day percentage loss for more than two years. The price is now less than $56 a barrel.

Tesco and Sainsbury's swiftly followed Asda's lead. Tesco said it would match Asda's prices with immediate effect, while Sainsbury's said it would be reducing the price of diesel by up to 2p a litre and unleaded by up to 1p a litre from this weekend.

Ray Holloway, from the Petrol Retailers' Association, said that fuel prices tended to drop after Christmas. "The competition for fuel customers really is competition for store customers," he said.

Last year prices came down to 83-84p a litre and Mr Holloway said it was possible petrol prices would fall as low as this.

Oil joins a broader decline in commodity prices. Analysts said this may have been triggered by some hedge funds moving out of these markets while others pointed to a lack of geopolitical news driving the oil market.

However, Mr Holloway was more cautious. "I think exactly the same thing will happen as last year, when petrol prices fell early in the new year but headed up again in March before nearing £1 a litre again."

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