Price of Oil Drops 74% From July Peak

Amid the general wreckage of what we are pleased to call the economy, one of the most welcome trends of recent weeks continues in this Associated Press story announcing that light sweet crude fell below 37usd per barrel this morning.

I know I'm not the only one who's been enjoying filling up the gas tank for half of what I'm now used to paying, but I'm also not the only one who bought into the general trend of arguments from two or three years ago, suggesting that the increasing consumption of oil by emerging Asian economies combined with price speculation in deregulated markets were producing a sort of market synergy and generating an unprecedented, permanent new price floor for oil.

Clearly, reality has proven more complicated than such sweeping models allow, and I've lost a long-running argument with my adviser. I guess the questions that need to be answered to better understand this phenomenon are:

1. Was Asian oil consumption actually responsible for driving up market prices, or were increased prices a function of regular market fluctuations?
2. Are we actually consuming less oil now than we were a year ago? Because suddenly OPEC is talking about reducing output, rather than claiming they don't have any additional production capacity to meet our endless demand. Knowing the answer to this would go a long way toward answering question one.
3. What should we see as the fundamental price driver for oil costs at this point?

We'll be watching over upcoming weeks to provide new answers to these old questions. In the meantime, enjoy driving like it's 2001.