Americans saw $4 a gallon at their neighborhood gas stations for the first time in recent days. At about the same time, a remarkable thing happened. Behaviors began to change.
The U.S. Energy Information Administration reports that consumption was down 1.6 percent last month as compared to the same time last year. Other surveys found a significant percentage of people who now are carpooling, taking public transportation or buying more energy-efficient cars. People are canceling vacations or planning time off closer to home.
For a while now, people have wondered how high gasoline prices needed to go before Americans no longer could carry on as always. Now we know. But the fact that it took this long, with the cost per gallon roughly double what it was a few years ago, is a testament to the strength of the U.S. economy. And there may be good news on the horizon.
If the three-year run-up in oil prices is the result of rising demand and shrinking supply, the tide may be close to turning. A decline in demand has to equate to a decline in prices.
Some analysts see the price of oil as similar to the sharp rise in real estate prices that ended last year. It is a bubble that will have to burst. Addison Armstrong, market research director for Tradition Energy, told the Associated Press that last Friday's extreme rise in the price of a barrel looked a lot like the type of final push or "blow-off top" that precedes a steep decline. He cautioned, though, that no one can know for sure.
Given that vacation season is here, we don't expect any rapid decline in prices, even if demand decreases a bit. Still, it's worth noting that the Saudis said they wanted to call a meeting of OPEC nations to discuss the high prices and that Treasury Secretary Henry Paulson has hinted he would take action to shore up the dollar a factor in oil's steep rise.
Neither one is likely able to do much alone. The same can be said for any presidential candidate or the combined strength of Congress. Election-year politics can lead to nutty ideas, and the oil crisis already has spawned its share.
High gas prices do hurt the economy. They suck up money that could be used to buy other things and keep people from traveling and spending.
But the best regulator is the market, and if Americans are serious about driving less, that is the surest indicator that prices won't go much higher.