Inventory data indicated a larger-than-expected draw on stockpiles, the U.S. Energy Information Agency announced Thursday. The EIA reported that crude oil inventories for the week ended December 28, 2007 fell 4 million barrels, compared to the consensus estimate of 2.25 million barrels. Inventories fell 3.3 million barrels during the prior week.

Oil traded up 27 cents to $99.89 in Thursday afternoon trading. Meanwhile, heating oil gained 1 cent to $2.74, natural gas fell about 5 cents to $7.80 per million BTUs, and unleaded gasoline declined about 2 cents to $2.53.

Bears in theory, only

Classic macroeconomics 101 teaches that it takes two sides, buyers and sellers, to make a market, and in the oil market -- although some investors/readers may doubt it -- bears, or sellers, do exist. Backed by empirical and qualitative studies just as rigorous as the bulls' studies -- although, admittedly, often with different assumptions -- the bears argue that oil is overvalued when compared to supply fundamentals, and they project a large price drop for oil. Still, according to Dietz, the bears' argument has remained in the realm of the theoretical:

"Let's put it this way - people who say oil is overpriced are not providing much evidence right now of a future decline," Dietz said.

C. Leonard Bauer, a stock analyst by trade, but, like many Americans, a gasoline user by necessity, believes the breaking point regarding demand will be $4 per gallon of gasoline.

"At $4 per gallon, demand for gasoline will probably drop. People will have to use less. I know I'll cut back," Bauer said. Bauer drives a Saab convertible but said he "would consider buying a more fuel efficient vehicle to cut gasoline consumption if gasoline remained above $4 per gallon." However, Bauer added that he would keep his Saab convertible for weekend/leisure use.

Near-record prices

Strong emerging market demand, particularly in China and India, as well as persistent increases in gasoline consumption in the United States despite $3 per gallon prices have placed an upward pressure on oil prices for more than 3 years. Previously, many analysts had said U.S. gasoline consumption growth would slow -- perhaps even decline -- after gasoline hit $3 per gallon. That did not occur. Although gasoline consumption growth has moderated some recently, it apparently has not been enough to place a downward pressure on prices.

In inflation-adjusted dollars, oil hit an all-time high of $102.80 per barrel in April 1980 during Iran's oil embargo, after that nation seized control of the U.S. Embassy in Tehran and held 52 Americans hostage for 444 days.

Analysts say the hostage crisis demonstrates the difference between the two oil price rises: the 1980 oil shock was caused by a lack of supply. Conversely, oil's current elevated price is driven largely by the aforementioned rising demand of the developed / developing world.