This morning, oil prices fell below $53 per barrel, down 33% from the peak in oil of $80 per barrel.  While the Saudi’s don’t like the price of oil coming down, what they hate worse is the idea that America’s addiction and that of the rapidly growing nations of China and India, may be moving toward alternative fuels.

With the Democrats in power now, billions of addition dollars will start flowing to alternative fuel research and there will be a greater push for E85 ethanol powered vehicles.  Governor Tim Pawlenty has in fact made this a cornerstone of his political platform.

The way the oil cartels can head this off is to bring oil back to earth.  I would expect to see $40-$45 per barrel by spring with the ultimate price coming back to $25 per barrel.  That should put gasoline under $1.50 per gallon and will certainly relieve some of the calls for alternative fuels.  However, my guess is the tide has turned, and while the Saudi’s have had success in doing this in the past, it won’t work this time.  Even many of the oil-supporting Republicans are on board with alternative fuels.

The Wall Street Journal reported earlier in the week that part of the run up in oil was driving by the investment community.  I believe in large part it was driven by the investment community.  It doesn’t take a lot of money to push the oil markets.  Now when they all decide to get out, there may well be a collapse.

The high prices of oil have certainly had a psychological effect on the American people and had raised their level of concern.  It also caused some momentary inflation scares given that the prices for raw materials that go in to houses increased fairly significantly during 2006.  Now that pressure is being relieved with the decrease in oil.

Will American’s feel more confident now that gas is under $2.00 per gallon and likely on its way to $1.50?  It’s been my belief that the American home buyer has lacked confidence.  Perhaps that confidence is about to firm up.