How and Why Oil and Gasoline Prices Drop

Scott Bleier
If you want oil prices to go down, you’d better be careful what you wish for.

At the beginning of summer of 2002 oil prices were just under $30 per barrel. Our economy was in a mild recession, and investors had not yet realized the momentous industrial ambitions of China. Since then the U.S. economy has enjoyed significant economic growth and China has become the fastest-growing economy in the world.

Tune in to "The Cost of Freedom" business block, Saturday at 10am ET and Monday at 4am ET, to hear what the "Forbes on FOX" experts have to say about the affect of oil prices on your money, the stock market, and the economy.

These two industrial superpowers are locked in competition for every available drop of oil in the open market. This demand is a huge factor in why oil prices continue to rise. The question becomes then, what can be done to reverse the price of oil? The answer might be a conundrum all its own.

One way oil prices can be curbed is through decreased demand. If oil and gasoline become so expensive, then perhaps consumers will curtail their driving habits. That could take a big chunk out of domestic usage and drive prices lower. But if that happened it would also slow the overall economy, which would not be desirable as it would hurt corporate profits and the stock market.

The government could also give incentives for energy conservation. How about a tax break for decreased energy usage? The “devil is in the details,” but it is another option to decrease consumption.

With these booming economies and strong demand, we must not forget that there is a high “terror premium” in the price of oil today. Some estimate it could be as high as $15 per barrel. Significant progress in our war on terror could certainly help drive prices lower.

If oil prices were to begin to trend lower, we would definitely see prices at the pump drop. But if they were to drop from here, it would probably be because consumption was down and the economy was slowing. While that might seem good for us individually, it might not be such a good thing for our country — at least in the short term.

This weekend our Business Block has much more on the price of oil. Tune in Saturday at 10am ET and Monday at 4am ET.

Scott Bleier is a FOX News business analyst and contributor, a regular panelist on "Bulls & Bears" and a frequent guest on "Your World with Neil Cavuto." Read Scott's full bio here .