Oh dear Lord, how I do love being right; even if it's only so often or for so long.

What you see in this chart, is a drop in oil price from it's high around $146, to today's close at $124. I know it's a little geeky looking, but basically each vertical bar represents the trading range for a given day; with the left pointing hashes representing opening prices, the right pointing ones the close. The columns across the bottom show trading volume.

This represents roughly a 13% loss from its high - on July 11th. Some of the more optimistic folks are calling this the ol' bubble popping.

I call it a response to the changing regulatory environment , obvious demand destruction, the long term possibility of the expansion of drilling operations in the U.S.; AND the bubble popping. The latest inventory report showed 2.9 million barrels of gasoline inventories; when only 500,000 were expected. Guess it got a little to expensive and people quit buying it, hm? Maybe? Yeah?

Yee haw.

"Why is cheap oil so important, when there are so many other financial problems?" you might ask. Well, as the price of oil decreases, it does two things that make you and I (as people with dollars in our wallets) richer. Firstly, it tends to shore up strength in our currency, since oil is bought and sold in dollars. Although it's not neccesarily a two-way street, there's a bit of cyclical action that ties them very closely. That action is the second thing that cheap oil does - it puts spending money in our pockets. Not just in the form of cheaper oil or gas; but in the trickle down effects of cheaper petroleum products in general, fertilizers, plastics, and every item that is brought to your home by anything (a plane, a train, a truck) that runs on petroleum based products. As Americans find they've got more spending money, they can pay back debts, make new purchases, and maintain a healthy economy. Healthy economy = strong dollar.

In all honesty, I'd be surprised if it continued to drop so precipitously. I'm still expecting it to drop in value, but there's a lot of dust left to settle; so I think it'll take some time. It'll be interesting to see how things take shape in the coming weeks.

Linkish Update: Ed Morrissey puts together a nice little aggregation of the facts on what increased production could do to global supply and, more importantly, U.S. dependance on unstable and unfriendly regimes.