The Saudi Solution

But privately Saudi officials took pains to assure the world that they would have none of it. "Saudi Arabia will meet the market's demand," an official told The Times, adding that the nation's policy "has not changed."

Economist Richard Felson told BloggingStocks Saudi Arabia's confidential communications "indicate that the Saudis thoroughly intend to continue its policy announced in August to pump 500,000-600,000 more barrels per day than its quota," or about 9.7 million barrels per day.

"It's a commitment and a recognition by the Saudis that they know the contraction effects of the oil shock. The evidence is abundantly clear that oil prices above $100 have slowed GDP just about everywhere, save for some oil producing nations," Felson said. "Had oil risen slowly to $100 over ten years, the braking affect would have been less, but that was not the case, and the U.S., European, and Asian economies have slowed dramatically, pretty much to everyone's detriment."

However, Felson was quick to point out that Saudi Arabia does not wield the influence over oil's price that it did in the 1973-1984 period, when there were fewer oil suppliers, "but they still have considerable sway, with anywhere from 1.5 million to 5 million barrels per day in spare production capacity, depending on the analysis."

Energy Trader Jim Dietz concurred. "It's a more-diverse oil market now, but if the Saudis keep pumping 500,000 more barrels per day above their announced daily quota, inventories will build, and prices will continue to moderate," Dietz said. "That extra oil production will not be ignored by oil traders, I can tell you that."

Further, Felson added that OPEC's hawk members, led by Iran and Venezuela "have lost credibility with the Saudis" because of their refusal to see how $100 oil hurts not only the world, but the OPEC cartel itself, due to the developed/developing world's revitalized commitment to substitutes.

"The oil shock has set in motion what are now large-scale efforts for alternative energy sources in the U.S., Europe, and Asia. And this shift to renewables for power and natural gas and other fuels for cars is only likely to increase as economies of scale take over, lowering the price of alternative energy plants and systems," Felson said.

Oil Analysis: Hopefully, this latest oil shock -- the world's third oil shock in 40 years -- will represent the era when developed/developing world nations finally started to shift in a wholesale manner to energy substitutes. For the U.S., that can only mean: 1) more energy dollars retained at home, 2) increased energy independence, 3) more U.S.-based energy jobs, and 4) increased foreign policy flexibility -- all positives for the U.S. economy and for the nation, overall.