The high price of oil and gasoline is clearly making consumers drive less often. According to a weekly survey by MasterCard Incorporated (NYSE/MA), the demand for gasoline in the U.S. Has declined for 13 straight weeks, including a 3.3% decline in the latest week. The movement of gasoline prices shows that there is high price elasticity between demand and price. When prices rise, demand falls, and vice versa -- when prices fall, demand rises. I know that, in my own case, I try to drive less.

The decline in gasoline demand is driving up oil supplies. This has seen oil retrench below $130.00 a barrel to the current $126.00 level for the light sweet crude for September delivery on the New York Mercantile Exchange. Oil is now down about 14% from its recent peak at above $147.00 just over a week ago. The failure of $130.00 to hold could indicate more downside moves, but I do not believe a trend reversal is in place, as the fundamentals for the oil market remain strong.

Also watch for the tropical storm season. Although tropical storm Dolly is not expected to do much harm to the Gulf of Mexico refineries.

The decline in oil and gasoline could help the market in the near term, as it removes a major risk factor. Nevertheless, oil prices are still high in spite of the decline and remain a threat to economic growth and consumer spending.

The near-term technical picture for the September light sweet crude has weakened to the current relatively bearish, with declining Relative Strength that is well below neutral, indicating potential more selling in the near term. Yet, with the price decline, oil is now severely oversold and is looking for support at the 100- day moving average at $121.09. The 200-day moving average is at $104.93.

Be careful if you are thinking of shorting oil at this point, as it can easily reverse course and rally.