There are many factors at play. Price instability is a key indicator that the tipping point of fear and panic is not far way.

Fundamentals of supply and demand will be clear in a year. By this time next year depletion rates and increasing domestic use in exporters will clearly indicate that demand destruction (economic destruction) or efficiency gains of 8% (rough guess) per year will be required just to maintain economic break even.

Fundamentals of supply and demand can be trumped (negative only) in so many ways: war, terrorism, storms, politics, stupidity (redunant), hoarding and other above ground factors. These instant actions will create supply shock.

Forecasting based on traditional supply and demand may work in the short term but ignores the whopper events. There are so many whopper events likely that it makes sense to ark-up, build an economic lifeboat for your economic community.

We have a small group putting together a list of supply shock contingency plans. So far the only two worth mentioning are Utah's and the IEA's. Both deal with temporary disruptions of less than 10%. I will try to create a post at TOD for people to list known and published contingency plans that can aid communities.

Elasticity of demand in the US is roughly - 0.045 for oil. Lower for gasoline, higher for kerosene and heating oil.

Here's a recent meta-review from Bank of England (6/2008) on oil price demand elasticity:

According to BoE price elasticity is close to nil in short term, but naturally increases as a function of time, while still remaining comparatively low. Income elasticity is much higher in developing Asia compared to OECD countries.