Crude futures surpassed $115 yesterday for the first time, as investors fretted over how much gas will be needed during the peak summer months.

The new record brings into clear relief Senator McCain’s solution for the skyrocketing price of oil, which he presented in a speech on Tuesday. His solution? Temporarily eliminate the 18.4 cents a gallon tax on gasoline (24.4 cents on diesel) this summer.

This is a terrible idea.

Although Americans would no doubt enjoy some relief from soaring oil prices, policymakers should work to keep prices as high as possible for as long as possible. Sound heretical? It’s not. It is painful, yes, but also the only real shot we have of attacking our greatest economic weakness: our reliance on imported oil.

By keeping oil prices high, the government will continue to encourage nascent investments in alternative fuels and the changing consumption patterns that are the only real answer to our dependence on oil producers such as Venezuela, Russia, and Saudi Arabia.

Our elected officials have consistently whiffed on energy policy, and it has cost this country dearly. While European nations have long used taxes to force consumers to drive high-mileage automobiles and to conserve on heating oil, we have done everything possible to guarantee long-term dependence on Middle Eastern oil producers. We had a moment, in the 1980s, when the government could have slapped an import fee on oil and maintained its price in the face of dropping demand, ensuring that conservation efforts and investments then under way in alternatives would be sustained.

Instead, our leaders took the easy way out and allowed the declining price of oil to filter through the economy, making consumers happy. The number of drilling rigs exploring for oil and gas in this country collapsed, alternative fuel projects were abandoned, and, slowly but surely, Americans reverted to their old gas-guzzling ways.

Consider the cost: You can make a solid case that the decline in the dollar today is the direct result of our towering trade deficit. More than one-third of that imbalance is the billions we are spending on imported energy. Inflation? One of the major elements is the soaring price of oil. The 0.3% jump in American consumer prices in March was due in large part to higher oil prices.

Today we have a real, serious chance to change our energy dependence. Lost in all the hysteria about record-breaking oil prices is the fact that oil consumption is again falling. Estimated global oil demand growth in the first quarter was less than half the consensus projection, according to energy guru Mike Rothman at International Strategy & Investment. Declining American demand is a response to the rapid price rise, and also to a first-time social consciousness about the environmental impact of oil usage. This is not the time to take a “time-out” in this process, though undoubtedly such an approach would please voters. Here are some real facts about today’s oil markets: The International Energy Agency has lowered its world oil demand projections several times, most recently last week. Worldwide demand is now forecast to rise 1.2 million barrels a day, down 400,000 barrels a day from the prior forecast, and down 900,000 barrels a day from its original forecast.

Mr. Rothman looks for oil demand to sag even further, and to rise only 640,000 barrels a day this year. Significantly, according to either projection, the Organization of the Petroleum Exporting Countries will begin to develop meaningful spare capacity in the coming months. In a recent report, Mr. Rothman says, “We see OPEC’s spare capacity climbing back over 5m b/d, given their projects for ’08 and our forecast for the ‘call on OPEC crude.'”

One of the recent causes for optimism here is the surge in Iraqi oil production in the past couple of months. Recent output from Iraq was around 2.45 million barrels a day, close to the pre-war level. Because OPEC can read the tea leaves as well as anyone, we would expect the leaders of that organization to try to manage prices lower. They have seen prices collapse before — they do not want to take a chance it will happen again.

Why aren’t prices reflecting this reality? Because hedge funds are pouring money into any trade that has been working recently, and oil is top of the list. To put this in context, Mr. Rothman cites figures showing that average daily trading volume of key energy futures, which historically has averaged three to five times world demand, is today running at about 14 times global consumption.

OPEC leaders get this. When pressed to increase production to stem rising prices, the president of OPEC, Chakib Khelil, responded that OPEC is no longer in control of prices, and that production levels are already higher than demand. “What would be the point of increasing production to satisfy demand which is not there?” he said.

Traders are citing every conceivable rationale for rising prices, including Mexican ports being closed because of bad weather (they are now open) or Russian output having peaked. Curiously, Brazil’s just-announced discovery of the world’s third-largest oil field caused barely a tremor. Something is not quite right.

One hopes we have all learned from the subprime mortgage crisis that economics will out. Just as making loans to people with no money can’t be a winning strategy, neither is buying oil in the face of a looming surplus. This may well be the next big stumble for traders.

Meanwhile, our leaders should be taking every measure to safeguard the incremental energy supplies being brought onstream because of today’s high oil prices. Further, we should be embracing a major expansion of our nuclear power industry, especially since, ironically, some in the environmental community have finally recognized the potential gain from converting to nuclear.

Bulls on oil point to rapidly rising demand from China, India, and other developing countries as supportive of a long-term price climb. They are entirely right, which is why the worst thing we could do is to let a short-term disruption in oil markets squash energy development efforts here. We should not, Mr. McCain, lower prices. If anything, we should rejoice in their ascent.

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