The price of oil is starting to stir the big players:

• China plans raise gas, diesel and aviation fuel prices for their citizens by 8%. The Chinese government controls price, so they are reducing their subsidy to increase the price of basic fuel. http://money.cnn.com/2008/06/19/markets/oil/index.htm?cnn=yes
• Saudi Arabia will increase oil production by 500,000 barrels a day in the next few weeks. http://www.independent.co.uk/news/world/middle-east/saudi-king-we-will-pump-more-oil-847830.html
• India, Indonesia and Malaysia cut government fuel subsidies. http://www.examiner.com/x-325-Global-Warming-Examiner~y2008m6d4-Further-Government-Cuts-in-Oil-Subsidies-Will-Help-Lower-Oil-Prices
• U.S. drivers have reduced their driving by roughly 4%. http://money.aol.com/news/articles/_a/driving-drops-as-gas-prices-hit-4/20080527124509990001
• U.S. oil companies are in final stages of negotiations for a deal to bring them back to Iraq. http://www.nytimes.com/2008/06/19/world/middleeast/19iraq.html?_r=1&scp=1&sq=iraq+us+oil+companies&st=nyt&oref=slogin
• U.S. to set new limits on oil trading on overseas markets. http://www.nytimes.com/2008/06/18/business/worldbusiness/18oil.html?scp=1&sq=oil+speculation+congress&st=nyt

The good news all of these contributed to the almost $5 drop in oil on Thursday. The news out of China will be credited for most of the drop, but this is only part of the good news, and the least important part. The big news is that the biggest player on the supply side (Saudi Arabia) and biggest players (U.S. consumers, China and India) on the demand side have implemented measures that have a chance at reigning in the price of oil.

Also, another piece of good news, there was an attack on Thursday against a Royal Dutch Shell oil field in Nigeria. Usually this would have caused a slight increase, but the positive news easily overwhelmed this negative news. http://www.msnbc.msn.com/id/12400801/

Analysis: A slow medium-term (6 months or so) drop in oil prices is likely. This drop will probably start sometime over the next 2 months if major events continue to work to move oil lower. However, it probably won’t cause a major drop in gas prices.

Note: The proposal to open up new areas for drilling in the U.S. is not affecting the price, as the traders know it will be many years before this oil would hit the market.