Six months after predicting unleaded fuel would reach $2 a litre, analysts are forecasting prices to approach $1 a litre.

CommSec's chief equities economist, Craig James, said the falls - unleaded petrol is down an average 35 cents a litre across Australia since July - will have a much more direct impact on the economy than interest rate cuts.

But an analysis of offshore prices shows savings are still to be delivered.

Since October 1, unleaded prices in Sydney have fallen by 16 cents, settling yesterday at 120.5 cents a litre, but the benchmark Singapore Mogas price has fallen by more than 25 cents, trading this week at a spot price of 51 cents.

The petrol commissioner, Joe Dimasi, said he expected average prices to fall in the next week, to settle slightly above the wholesale price, which was 115c a litre yesterday.

"We are in a period of unprecedented volatility," he said. "When I look at wholesale prices, they have been passed on pretty closely to the Mogas prices, so the falls in Singapore prices are being passed on to the retailers.

"There is then a bit of a lag in that price being passed on to the pump.

"I think prices are falling so quickly that some retailers are being caught out from the pack."

The fall in demand for petrol, due to the slowing world economy, has been so drastic that oil companies are now selling refined petrol for less than they can buy raw crude.

Australian Institute of Petroleum figures show the average price of refined petrol is $12 below the average price of crude oil, which Mr Dimasi said was "not sustainable in the long term".

But Mr James said the biggest factor affecting prices was global demand, which was not forecast to strengthen.

"The wholesale price has been falling over the past fortnight quite significantly," he said.

"The national average [wholesale] price is down around $1.15 so if it stays there, or falls even further, we'll see pump prices anywhere between $1 and $1.10 at the low end of the cycle.

"It's a big change in a very short period of time for consumers."

In other developments yesterday the Senate voted down the Federal Government's FuelWatch legislation which would have required service stations to fix their petrol prices every 24 hours.

...with Mark Davis