ConocoPhillips (NYSE: COP) fourth-quarter earnings report provided a stark contrast to the high-flying results being reported by the oil companies when gasoline prices exceeded $4 by a substantial amount in some markets.

For the quarter, ConocoPhillips reported a loss of $31.8 billion. resulting from the write down of certain assets, including goodwill put on the books after several recent acquisitions.

When they had the capacity to do so, they refused to increase production, preferring instead to reap ever higher revenue - - essentially extracting as much money for energy as possible out of the U.S. and global economies.

The result: Oil Shock III - - aided by the leverage financing boom - - which sapped disposable income, helping trigger the current U.S. and global recessions.

OPEC miscalculated and simultaneously choked-off oil demand - - and, once again, 'killed the goose that lays the golden egg.'

Now global oil demand is falling - - including real consumption declines in the United States, and, incredibly, flat demand in emerging markets. And the price of oil? Despite a record $100 plunge in one year, it continues to fall - - currently trading around $41 per barrel.

Energy market professionals say that when assessing the oil market today, it's important to focus on one factor, demand.

Crude's rally from the low $30-range to above $50 per barrel in less than a month had visions of $60 oil dancing in the heads of oil bulls, but it was a rally that nevertheless flew in the face of demand fundamentals.

Declining demand is the key

Those fundamentals show, among other consumptions stats, real declines in both oil and gasoline consumption in the United States, and a decline in the growth of oil consumption in China -- two major energy markets, Energy Trader Jim Dietz said.

The consequence? Inventories are rising worldwide, he said. One example: oil inventories at Cushing, Oklahoma, where fuel for NYMEX traded contracts is stored, has increased to 32.4 million barrels, the highest level since 2004. Nations and other oil producers are also increasing their storage of oil at sea in supertankers, Dietz added.

OPEC, which Tuesday again lowered its 2009 global oil demand forecast (pdf), is still seen cutting production quotas, but at its regularly scheduled meeting on December 17 in Algeria, not at its special meeting November 29 in Cairo.

Still, the compelling question remains whether OPEC members will comply with existing decisions to lower production, let alone new ones, said economist Peter Dawson.

OPEC problem: production 'cheaters'

"OPEC members are getting into a bit of quandary, and it's one we've seen before, cyclically, in the oil market. States know that if they all cut, their action will support prices some," Dawson said. "The problem has been that historically, some members 'cheat' a little and produce over their quota, thinking their small increase will not affect prices that much, and they will reap extra revenue as a result. When several members do this, the price of oil continues to drop, and so does the cartel's effectiveness."

In the past, cheaters have been small OPEC states, such as Iran, Libya and Nigeria, Dawson said. Oil Tuesday fell 37 cents to $54.58 per barrel. Oil has plunged more than 60% since hitting a record high of $147.27 per barrel this summer, as both long-term investors and short-term traders exited long positions in the markets.

One of the main things that was on most of our minds this summer was the record high gasoline prices that gripped the nation. While prices are still very high on a historic basis, the past month has seen a nice drop in prices, and given drivers a bit of relief when they pull into their local gas stations.

According to AAA, gasoline prices fell again today, currently down to $3.683 a gallon for regular unleaded, still pretty high, but much lower than what we were seeing in the middle of summer.

Prices set a high on July 17, with the national average for gasoline going for $4.114 a gallon. While we are all relieved to see prices off their highs, they are still well above where they were at this time last year, when the national average was down at $2.81 a gallon, 31% lower than the current price.

With the latest credit market jolts leading to Lehman Brothers Holdings Inc. (NYSE: LEH) decision to file for bankruptcy and the Bank of America Corporation's (NYSE: BAC) move to acquire Merrill Lynch & Co., Inc. (NYSE: MER), it may seem like a misapplication of analysis to discuss oil.

Not so, says one energy trader. "Oil can be a factor in righting the markets and the U.S. economy," Energy Trader Jim Dietz told BloggingStocks Monday afternoon.

How so? "A substantially lower oil price will increase disposable income, help put a lid on rising business costs for transportation and heating, and lower the U.S. trade deficit. These are all good things, shots in the arm for the U.S. economy," Dietz said. "And right now we'll take any shot in the arm we can get." Dietz added that he was currently short oil, with a monthly contract.

Oil Monday afternoon was down $4.25 to $96.93 per barrel, continuing a two-month trend of lower oil prices. Oil hit a record high of $147.27 per barrel in July 12.

Beyond the torment it has already caused in the Carribbean and the stress it places on those who are evacuating the Gulf Coast, hurricane Gustav will lead to higher prices at the pumps. That's because the majority of the Gulf of Mexico's oil production is shut down in anticipation of Gustav's force.

Exactly how much production is being shut down? CNNMoney reports that "energy producers have shut in approximately 77% of oil output and 37% of natural gas production in the Gulf of Mexico." This is affecting three producers particularly hard -- Royal Dutch Shell PLC (NYSE: RDS.A), BP PLC (NYSE: BP) and Chevron Corp. (NYSE: CVX).

And the production shut-down is significant -- "nearly 1 million barrels of daily oil production is now shut down. The last time this happened was in November 2005, after Hurricanes Katrina and Rita. In addition, 2.75 billion cubic feet of daily natural gas production is now shut down" according to CNNMoney.

Last Friday's rally was heartening, but why did it happen? I am guessing that a drop in oil and a rise in the dollar were helpful ingredients. At $115.32, oil is down 22% from its $147.27 a barrel high, and at $1.49, the dollar has strengthened 11% from its low of $1.60 per euro. But what was behind those moves? Can those factors persist? What happens to stocks if they sink?

The dollar/euro is moving based on relative economic strength and inflation policy. Some think that the dollar strengthened over recent weeks because Europe appears to be heading into a recession and the U.S. has already been in one since the fourth quarter of 2007. If the U.S. is further along, it may begin its recovery sooner.

As far as inflation policy, the U.S. has kept rates at 2%, while Europe appears more likely to raise rates to fight inflation. Bloomberg News reports that European Central bank council member Klaus Liebscher said "policy makers remain focused on the 'worrying' level of inflation." The euro has rebounded to $1.50 on this announcement.

High gasoline prices are putting the squeeze on companies and their workers. People are leaving their jobs due to the high commuting costs. The New York Times reports that a resume service received "14 calls last week and 9 of those named high gas prices as their No. 1 reason for leaving their job."

And by my count, the Times presents seven ways that companies are changing to relieve the pressure:

• Encourage more telecommuting. The Times describes how "Citigate Cunningham, a public relations company, now encourages workers to stay home whenever possible, providing laptop computers and BlackBerrys to enable telecommuting, and reimbursing them $40 a month for high-speed Internet connections in their homes."
• Give employees money to pay for gas. Since June, OperationsInc., a human resource consulting firm, gave employees up to $100 a month on an American Express (NYSE: AXP) card "to offset rising gas prices."
• Rent offices closer to workers' homes. Microsoft Corp. (NASDAQ: MSFT) recently "leased three large office complexes far from its headquarters" to cut 7,000 employees' commutes.

NBC's Today Show is running a story this morning on the $100 fill-up. With gas prices hitting over $4.50 a gallon in some places, anyone with a tank that takes more than 22 gallons could find themselves topping two figures when they go to the gas station.

Since my tank is 20 gallons, I have not had that experience yet. But there are many people who have. I can only imagine that the first time someone spends over $100 to fill up their tank fills him or her with different emotions. Three that come to mind are anger, frustration, and a sense of helplessness. I know that more people are turning to motor scooters, such as the Vespa, which get 70 miles per gallon to get around.

But if your vehicle takes more than 22 gallons, it may be that you need more room than a scooter can provide. Have you reached that $100 a tank threshold? How do you feel about it? Are you doing anything differently as a result?

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

Things are not working out so well for those at the Fed who deny that inflation exists. After all, its job is to keep the currency strong by putting out brush fires of inflationary expectations before they can become a firestorm of price spike fears. And if current consumers' expectations of inflation are any measure, the Fed is not doing its job.

That's according to the Associated Press, which reports that 90% of those it polled expect ballooning costs to squeeze them financially over the next half-year. Consumers have less money than they used to -- the median income is down since 2000 from $61,000 to $60,500. And prices have risen -- food has tripled in many cases and gasoline prices are up to around $4.20 a gallon. But the Fed does not see this -- it measures inflation excluding food and fuel -- and has kept rates at 2%.

And with housing in the tank and lenders in trouble, they can't borrow their way to balancing their budgets. Since the Fed is not controlling inflation, people are coping by cutting back. They are driving less, easing off the air conditioning and heating at home and cutting corners elsewhere. Half are curtailing vacation plans; nearly as many are considering buying cars that burn less gas.

Ted Allrich is the founder of The Online Investor and author of the just released book: Comfort Zone Investing: Build Wealth And Sleep Well At Night. In this weekly column, he'll offer advice to investors who are just getting started.

Last week I wrote about what might happen if gas continues its seemingly inevitable march upward, maybe reaching $10 a gallon. There will be changes in our lifestyles, major changes. Some companies will benefit greatly, others will simply go away, unable to evolve with the new reality. Here are more industries that will be affected.

The airlines, at least the ones left, will fly smaller planes, more fuel efficient. They'll be full, every one, every time. They may not take off unless they are. Some cancelled if they're not booked up 12 hours in advance. Expect more hassles at the airport, more charges and fees for whatever airlines can imagine. (How about charging by the pound? Passengers get on a scale, then pay at the counter based on their weight.) Seat space will get even smaller.

The highways I drove this Memorial Day weekend were relatively empty thanks to people opting for a Staycation. But people I spoke with were wondering why gasoline prices were so high and whether they'll go higher. While USA Today thinks they've peaked, my answer to both questions is I don't know.

But if one source is right that 60% of the trading volume in oil is from speculators, then a rise in the dollar and a drop in consumption would force those speculators to reverse course -- and that would send oil prices plummeting. Here are five things you can do to help make this happen:

• Drive less. Many people don't have the option to do this. But carpooling is an option for many. People can also try to make many stops during a single car trip rather than doing one at a time. And they can try to telecommute more frequently.
• Take public transportation. Much has been written recently about people taking buses, trains, and other forms of public transportation to work. While this is often more time consuming and can be inconvenient. It may also save money and will certainly cut down on your gasoline consumption.
• Ride a bike or use a motorcycle. I know riding a bike would be a major inconvenience for many people. Riding a motorcycle gets better gas mileage than a car and is fun for some. During periods of dry weather these options could work fairly well. But they'd be awfully tough during a snow or rain storm.

With gasoline prices going through the roof lately, the main question on every motorists' mind has been how to save some money at the pumps. The obvious answers are to either drive less, or buy a car that uses less gas, preferably a gas-electric hybrid. Hybrids, unfortunately, are pretty expensive, but Honda (NYSE: HMC) has announced plans for releasing an affordable gas-electric hybrid next year.

Honda plans on this new hybrid to be a brand new car model for the company, and the model will only come in the hybrid version. In addition, it will also be coming out with new hybrid versions of its already popular Civic and CR-Z.

The company's President, Takeo Fukui, stated that there has been a lot of attention placed on hybrids recently, and that now was the time to "go to the next step." He did not make any predictions on just how much the new hybrid-only model would cost, other than it would be affordable. There was also no mention of the name for the new model, but some descriptions were given, including that it would be a 5-door sedan with new weight reduction technology to help improve the vehicle's efficiency.

I know that last thing you probably wanted to hear this morning was that oil prices moved even higher, but that is exactly what is taking place, as oil rose as high as $125.98 and is currently trading at $125.60.

Leading the charge today is the weak dollar as investors continue to seek refuge from the falling U.S. currency in commodities -- most notably, oil. The dollar has fallen today against the euro, the British pound, and the Japanese yen. The euro was sitting at $1.5404 last night, but has moved higher today, up to a current price of $1.5466.

The market is also concerned about the upcoming peak driving season for Americans. With the season getting under way, oil prices will definitely continue to rise, and if gasoline stockpiles continue to fall, you can be sure that gasoline prices are also going to keep moving higher over the next couple of months. Will we see national averages of $4 or greater? I don't think so, but at the current rate prices are moving, nothing is out of the question right now.