A psychology reversal may be occurring in the oil market - a shift in sentiment that may be good news for U.S. consumers. That was how one trader characterized oil's $3.41 fall to $118.00 per barrel Tuesday in premarket trading.

Tuesday's early morning negative catalyst was a report that Tropical Storm Edouard will leave U.S oil rigs and refineries without significant damage, but energy trader Jim Dietz said bearish sentiment has been on the rise for about 10 days.

Beginning of psychology reversal?

"Tropical storm or not, a psychology reversal is starting to occur in the oil market. There's a real concern now that a global economic slowdown is occurring and it will be reflected in oil demand figures for August and September," Dietz said. "We've had two days of a storm in the Gulf of Mexico and negative rhetoric from Iran and oil rallies couldn't hold. That's a sign of a bearish market."

Dietz said he is presently flat, or has no open energy trading positions, but added "that may change later today if the bearish trend persists."

The other major energy commodities also fell in premarket trading Tuesday. Unleaded gasoline fell 6 cents to $2.93 per gallon, heating oil declined 5 cents to $3.29 per gallon, and natural gas plunged 33 cents to $8.39 per million BTUs.

Oil has now fallen about 20% from its all-time high of $147.27 registered on July 11, 2008.

Dietz said he was reluctant to establish short positions earlier in the sell-off "because oil has corrected at least five times in the past 12 months and found reasons to move higher." However, he added that he would become bearish on oil and establish short positions if oil fell and closed below technical support around $116.

Oil Analysis: A bear market ahead for oil? As trader Dietz noted, it remains to be seen, and more data points are needed before one can confirm the trend. That said, with demand destruction in the U.S. due to $4 gasoline, lighter demand figures from Europe should push oil even lower, a welcome sight for oil importing nations and consumers.