Oil drops again

We're about to test the $122 barrier for crude futures, having settled at $123 and some change on Friday. Like I said last week, if it doesn't and build a base here, there's nothing to stop it until it hits $98 a barrel.

This is all demand driven and demand is contracting all over the world. Two major points from Bloomberg underscore this:

U.S. fuel demand averaged 19.9 million barrels a day last week, the lowest since January 2007, the Energy Department reported on July 23. U.S. gasoline consumption fell 3.3 percent from a year ago, the 13th consecutive weekly decline, a MasterCard Inc. report on July 22 showed.

and:

Japanese oil imports fell for the first time in nine months, the government said yesterday. South Korea consumed less fuel for the eighth straight month in June, state-run Korea National Oil Corp. said on July 22. The U.S., Japan and South Korea are the world's first, second and fifth biggest oil importers, according to the U.S. Energy Department.

The Saudis (and Russians and Venezuelans) can pump all they want but they are reaching a point where they can't sell it. And with more America field coming online soon, we may see an American automotove renaissance, albeit with smaller cars.

Alan Reynolds over at The Cato Institute brings sound logic to the table. Money quote:

When the price of anything gets unbearably high, it discourages demand. The resulting drop in sales, in turn, causes inventories to pile up and the price to come down. That has proven true of overpriced houses - and it will likewise prove true of overpriced oil.

He's right, you know.