July 30 (Bloomberg) -- There is nothing harder to distinguish than a bull market pause and a turning point. It is only in hindsight that you can tell one from the other.

This month's decline in the price of oil -- to $123 a barrel from a peak of $145 -- looks like that point has arrived.

It may well be enough to dig the financial system out of its mess. Oil at a more sustainable $80 to $90 a barrel would suddenly make the economic weather feel a lot sunnier. With inflation under control, central banks could cut interest rates again. Property markets would stabilize, helping banks to begin lending and to reinvigorate the global economy.

So has the oil market turned? The price of a barrel of crude reached a record $145 a barrel on July 3. At that price, there was plenty of speculation that it could go as high as $200 or more. It didn't happen.

Everywhere you look, there are signs that the jump in prices has forced a significant decrease in the amount of oil we use. According to the AAA, the largest American motoring group, the number of car trips that Americans are taking is now falling for the first time this decade.

In Europe, the budget airlines are starting to park planes and raise fares. Ryanair Holdings Plc, Europe's largest discount airline, said in July it was grounding aircraft at London's Stansted Airport and suspending flights to seven European cities through November and December. The reason: The cost to fill up the tanks is too high for half-full, budget planes.

Alternative Energy

One French company is even bringing back the sailing ship. Compagnie de Transport Maritime a la Voile is shipping wine from France to Ireland using wind power, an energy resource seldom in short supply on the Irish Sea. And why not? After all, most cargo is in no great hurry to reach its destination.

Such initiatives are a reminder that we used oil because it was a simple and cheap source of power. There were always plenty of alternatives around -- and if oil isn't cheap anymore, people are going to start using them again.

In short, the laws of supply and demand are reasserting themselves. Lehman Brothers Holdings Inc. predicts oil will drop to $90 a barrel early next year.

``The deteriorating demand picture reinforces our belief that oil prices are approaching a tipping point,'' it said in a note to investors. Chakib Khelil, president of the Organization of Petroleum-Exporting Countries, said this month oil would cost about $70 to $80 a barrel if it weren't for the weak dollar and a potential conflict in Iran.

Oil Shocks

Cheaper oil wouldn't necessarily be beneficial to everyone. We can be sure that many investment banks and hedge funds have speculated wildly in the oil market, and that some of them will make horrendous losses. Expect some shocks to emerge on the way down, just as they did on the way up.

Likewise, a soaring oil price was helping the environment. The world needs to wean itself off its addiction to fossil fuels, and the markets certainly delivered an incentive to do that. Arguably, much of that work has now been done. You don't need $300-a-barrel oil to get people to trade in their gas-guzzling sport-utility vehicles.

Overall, a sustained cut in oil prices will be hugely beneficial to the global economy. Here's why.

First, it will reduce inflation rates. By next year, the impact of the oil-price increase will drop out of the published figures. The European Central Bank and the Bank of England will be able to boost the U.K., Spanish and Irish economies, which are perilously close to recessions. In countries such as Germany, where growth is starting to flag, it will pep them up again.

Property in Freefall

Next, lower interest rates and better growth figures will start to stabilize property markets. Nothing will protect Britain and Spain from significant housing-price declines, but it's possible to stop them going into a freefall.

In turn, a steadier real-estate market will help the banking system. Through mortgage loans to homeowners, and corporate loans to developers, the banks suffer along with the property market. As lenders stop losing money on housing, they should be able to help bolster a recovery. Companies will get financing for expansion again. Consumers will feel more confident once they aren't watching the value of their homes plummet every week.

Oil is unlikely to be really cheap ever again. Yet a decline to $90 a barrel should be enough to rescue the global economy from catastrophe and get the financial markets working again -- until the next bubble comes along.

(Matthew Lynn is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Matthew Lynn in London at matthewlynn@bloomberg.net.

Last Updated: July 29, 2008 19:01 EDT