Discussions at the just-concluded meeting of OPEC heads of state reminded me of an old expression: Bears and bulls make money, but pigs never do. With oil prices hitting all-time highs against the falling dollar, OPEC leaders agonized over the impact of the American currency on their purchasing power. In many parts of the world, oil prices in local currencies are down this year, not up, because of the slide in the dollar’s value.

The OPEC leaders should be jumping for joy. Here’s the reality: The rise in oil prices since 2002 is beginning to depress consumption, and to stimulate supplies. In other words, the law of supply and demand extends even to the oil industry, as we have seen before. There is every reason to believe that we are at a tipping point.

This reality has been drowned out by the noise of the spot markets, where oil prices have edged near $100 a barrel. Noncommercial (aka hedge fund) positions in oil have been near the all-time highs set in August, and “spreading activity” hit a record level last week. As one alternative investment play after another went sour in recent months, a huge amount of money has flowed into the oil futures and options markets. (The same traders are now short the dollar.) Recent figures tallied by International Strategy & Investment show the average daily trading volume of crude oil and products futures at more than 1 billion barrels — compared to world demand of about 86 million barrels a day. This is unprecedented.

In an interview last week with Canada’s Globe and Mail, the Saudi oil minister, Ali al-Naimi, said: “The price today has no relation whatsoever with the fundamentals. The fundamentals do not support the current price.” He cited $60 as a more economic price, reflecting the cost of the marginal extra barrel, such as from tar sands.

Why, then, the frenzied expectation of $100 oil? Support for the jump in prices has come from innumerable articles about the vanishing supplies of oil and the upsurge of consumption in China and India.

Consider, though, the following: The latest report from the International Energy Agency said “high prices are depressing demand” and it cut its forecast of worldwide consumption by 500,000 barrels a day for this year’s fourth quarter, and skimmed another 300,000 b/d off projected demand in 2008. Those are big numbers, and reflect not only slowing economic growth in a number of countries, but some reduction of the ratio of energy usage to expansion. The growth in worldwide oil consumption for next year is now forecast at 2.3%. It is likely to be cut again. Meanwhile, the most recent Department of Energy data show oil demand for the past four weeks in America down 0.7%; for the year to date, demand is ahead only 0.1%. Remember that U.S. economic activity has been strong this year, including a gangbuster third quarter.

The supply side, too, is responding to higher oil prices. Despite proclamations that “all the major oil fields have been found,” exploration continues to be fruitful. Just recently a huge field was discovered offshore in Brazil. Though it will be expensive to develop, the oil field apparently has the potential of producing up to half a million barrels a day several years from now, making it one of the world’s largest. Brazil’s energy minister was quoted by the Financial Times as saying: “We could be heading to the same level as Saudi Arabia and Venezuela.”

Russia is projecting that oil output would increase 5.2% between now and 2010 — more than twice its earlier estimate. Iraq is finally posting higher production, with production above 2.2 mb/d, up from a low of about 1.5 mb/d a year ago. Meanwhile, tar sands production in Canada will drive that country to become the world’s fourth-largest producer by 2015. Canada’s National Energy Board forecasts production of 2.8 mb/d by 2015, up from 1.6 mb/d this year, assuming oil is at $50.

Let’s not forget alternatives, which are coming on fast. Ethanol production is rising sharply, and the use of solar and wind power, though still tiny, is certainly economic at $100 oil.

Before the chatter among OPEC leaders turned to trashing the dollar, it was focused on asking consuming countries to guarantee future demand. Those countries that are capable of increasing production are reluctant to make the necessary huge investment without some assurances. Saudi Arabia, in particular, is investing $80 billion in projects expected to lift production to 12.5 mb/d by the end of 2009. But, they are worried the oil might not be needed. Doesn’t that say it all? We have been through this cycle before. And so has OPEC. Oil demand can weaken, as can prices. Books have been written about the inability of oil producers to satisfy demand; apparently, they weren’t published in Arabic.

So, can we relax, knowing that the oil market will rebalance? Not at all. There may be oil available at $100, but it’s not in Texas or Oklahoma. Mostly, we still depend on a bunch of hostile and unstable producing nations to supply us with an indispensable commodity.

That is why our government should take advantage of this period to guarantee that investments in alternatives and in conservation measures will bear fruit. America should put a floor under oil prices, at perhaps $60/barrel. Though unpopular with the Saudis, and with free-market advocates everywhere, such qualms have to bend before national security.

The American consumer may not be happy about it, but she is dealing with $90 oil prices. If the government moved now to assure that oil prices would remain above $60, start-up investments in solar heating and tar sands and the like would go forward, as would conservation measures that are just gaining momentum.

At an investor meeting last week, a top oil trader said he would never leave the office on a Friday night with a short position in oil. That made sense. Who knows what could happen in the Middle East over a weekend, or in Venezuela, or in Nigeria? No one, which is why our government should take advantage of today’s high prices and invest for our future, not OPEC’s.

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