There’s a saying in the oil business: The best cure for high oil prices is high oil prices. In other words, when prices are high, consumers are supposed to buy less at the pump and oil companies are supposed to produce more because it is more profitable to do so.  So, is that the explanation for today’s plummeting oil price? In late Thursday morning trading, the principal oil benchmark price in United States trading was down more than 6 percent, and the price has been tumbling for the last three days. Gasoline prices, which normally are a week or two behind oil prices, have peaked and are poised to start falling.  Is this simply a matter of supply and demand? And how far might prices fall? The answers, sorry to say, are not simple. Demand at the pump has been depressed somewhat, particularly among rural and lower-middle-class drivers in the West and Southeast who spend a larger fraction of their income on fuel. Nationwide, though, most drivers are not changing their habits much.  The latest data from the Energy Department and from private groups that survey gasoline prices suggests that demand nationwide in the last month is down anywhere from just under 2 percent to 4 percent from a year ago.  That’s nothing to sneeze at, but compared with a price rise over the past year averaging over $1 a gallon for regular, it is not that great. It is also the extension of a longer trend in which American gasoline use peaked four years ago before the recession began and the car fleet became more efficient.  While Americans consume about one-quarter of the world’s oil output, demand for oil is still growing around much of the developing world. Still, evidence of lower gas consumption in the United States has affected the psychology of commodity traders, who have a big impact on prices day to day.  As for suppliers, the picture is also mixed. The intentions of the biggest supplier, OPEC, have been unclear. After turmoil began spreading across North Africa and the Middle East this year, Saudi Arabia promised to expand its production capacity. But in recent weeks there is evidence that Saudi Arabia, by far OPEC’s biggest producer, has actually decreased production.  The Saudis say that world markets are flush with oil. Some analysts take them at their word, while others say that the kingdom either really wants oil prices to go higher or does not have the ability to increase production even if it wanted to. The jury is still out.  Non-OPEC production is relatively stable for the moment. So it does not seem like producers are the reason for the sudden drop in oil prices.  That all leads me to the conclusion that this drop in price may well be temporary and prices will probably surge again. A correction was simply due. So trading in the gas-guzzler for a more efficient car is probably still a good idea.
Nationwide, most drivers have not changed their habits much, which suggests that prices will advance again before long.