Heart-poundingly high gasoline prices are historically both the early warning signal and the catalyst for correction in the price of crude oil. With many consumers clutching their chests at the pump today, a sizable correction may be just around the corner.

 Many believe the current dip in oil prices is a short-to-medium term move attributable to the strengthening of the U.S. dollar. But a recent report by Mecklai Financial shows that crude oil prices have quite a small relative correlation to the dollar index, which leaves demand as the undisputed power behind the pricing of crude oil. A drop in demand, which we see happening, could turn this dip into a more substantial slide.

 The skyrocketing GDP growth in emerging Asian economies that has helped fuel high oil prices is showing signs of slowing. GDP growth for these economies is forecasted to decline across the board from 8.7% in 2007 to around 7.6% in 2008. While GDP slows, the affect on oil demand is compounded by a decreasing consumption of oil per dollar of GDP. In other words, not only is the growth rate fueling oil demand slowing, but the growth itself is requiring less and less oil. 

 Another change in the Asian winds could have even greater impact. Many governments that have been subsidizing domestic fuel prices have now pledged to eradicate these programs. A late addition to the flock of de-subsidizers, China, the second largest oil user in the world, has just announced a policy change that will introduce its billion-plus population to sticker shock.

 When prices rise sharply, drivers cut back and falling demand takes prices with it. It's happened before, for example in the oil crisis of the 1970s, and it's happening again, worldwide. Globally, oil consumption per dollar of GDP is sinking.

 It's sinking even in the U.S., still the number one consumer of oil in the world but not quite as profligate at $4/gallon as we were at $2/gallon. Proposed legislation to heap more taxes on carbon-based fossil fuels has the potential to drive pump prices here even higher, dampening our appetite even further.

 The Senate is considering moves to add more downward pressure. Oil speculation, which some oil executives claim might be responsible for as much as half the current cost of crude (I don't think it's that high, for the record), could be impacted by a dramatic increase in the margin required for trading contracts, as Dennis Garman warns [1].

 As drivers of gas-guzzling SUVs, we're inclined to make the pessimistic mistake of thinking oil prices only move in one direction-up. As investors, we should avoid making the optimistic mistake of thinking the same. In fact, in direct opposition to the way we usually think, rising prices at the pump may point to lower prices in the near term, a signal not to be ignored by investors!