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To hard-pressed motorists in Singapore watching the weekly rise in pump prices with alarm, this is a hopeful development.
The vital question now is: Have oil prices turned the corner, or is this simply a pause before they head north again?
The recent relentless rise in oil prices has replaced the global credit crunch as the most talked-about topic in financial markets.
The ease with which crude oil punched through the US$130 a barrel barrier set off alarm bells around the world about the dire economic consequences that might arise if oil does indeed go on to hit US$200 a barrel, as some are predicting.
Economic impact
ANALYSTS warn that a 1970s-type scourge - stagflation - might rear its ugly head, and doom global economies to a period of low growth and soaring prices.
Stagflation involves a deadly mix of high inflation and economic stagnation - sometimes accompanied by high unemployment.
The relief brought on by falling oil prices last week was quite obvious.
In just over a week, crude oil retreated by almost 7 per cent after hitting a record high of US$135.09 a barrel late last month.
The prices of other commodities have also fallen as a result - including gold and lead, and foodstuff such as rice and wheat.
Many are now arguing that the recent spike in oil prices and its equally dramatic correction might have arisen not so much because of the usual supply and demand factors, but because of frenzied speculative activity by big-time traders.
Consider this: Are not the predictions of sky-high oil prices simply too self-serving? Some of them come from big institutions which are big proprietary oil traders themselves with a clear vested interest in keeping prices high.
One factor these speculators might not have taken into account is that even big countries such as India, China and Indonesia are feeling the pain from high oil prices, and are rethinking fuel subsidies they offer to consumers.
These nations are hopeful that trimming the subsidies will cause a drop in demand for oil.
Such a scenario may spook the big-time speculators and force them to let go of the huge oil positions they are now sitting on.
By some estimates, investments in commodity futures - mostly oil trading - have risen dramatically from US$13 billion five years ago to US$260 billion (S$355.3 billion) now.
This has led observers to believe that the scale of bets on oil futures is so enormous that it is almost equal to the rise in demand for oil in booming China - one of the biggest demand factors affecting oil.
After all, only four years ago, one firm - China Aviation Oil - dabbled so heavily in oil futures that it was in a position to single- handedly supply the world aviation industry with jet fuel for six months.
That came before badly judged bets on oil led to its spectacular near-collapse.
Since then, the oil futures trading market has grown explosively.
Historically, oil futures markets have been 'short', because oil producers need to buy futures to hedge against any fall in oil prices.
But with so many financial markets effectively shuttered because of the ongoing credit crunch sparked by the mortgage crisis in the United States, there are few profitable places for traders to park their money.
The result? The oil futures market has become 'long' as investors flock there in droves, betting big on fresh highs in crude prices.
In the short term, they are betting that the good times will continue to roll. This has inadvertently created an 'artificial' shortage as they sit on their huge positions.
Continued upside
SOME believe that it will take a while for demand in oil to drop in fast-developing countries such as China and India, and this means that oil prices might still have some upside.
They note that China, for instance, is not going to rock the boat and cut fuel subsidies before the Beijing Olympics in August.
But these oil bulls may be ignoring another factor - the role played by central banks like the US Federal Reserve in the energy equation.
Some have noted that the Fed indirectly contributed to the sharp jump in crude oil prices, with its series of aggressive interest rate cuts and the money it pumped into the financial system to keep global financial institutions on their feet over the past nine months.
The subsequent collapse in the value of the greenback - fostered by the Fed's lethal medicine - simply means that oil producers want more in US dollar payment terms for their precious commodity.
The acid test for speculators may well come in the next few months when the Fed reverses gear and starts to raise interest rates, making it expensive for those who borrowed heavily to take big bets on oil to hang on to their positions.
This may just produce an 'oil shock' for the traders who have believed so fervently that oil prices will simply keep rising.
Such a shock would, however, be very good news for motorists.
