John Kilduff
CNBC Contributor

Crude oil’s sell-off from the high of $135 a barrel continues apace, driven, in part by concerns over demand sustaining itself. Far reaching "demand destruction" is on the rise.

We see this in the form of reduced retail fuel price subsidies in foreign lands with controlled economies. The country of India is the latest to capitulate to the burden of providing a break to consumers at the pump. Indian politicians had shown an initial reluctance to reducing these subsidies prior to their next round of elections, but the cost has proved too great.

U.S. corporate behavior is changing too, furthering the demand crunch. Cutbacks in plane deliveries and overall capacity in the airline industry is going beyond demand destruction to something approaching industry destruction. Sales in the automobile industry are abysmal, and the iconic Hummer brand may go the way of the Edsel.

In the heat of the rally in energy prices, the big question was when would there be a demand response? Admittedly, consumers and consuming nations held out longer than I thought possible, but the day of reckoning has arrived.

Another significant pillar of the rally, the decline in the value of the US dollar, appears to be crumbling. Yesterday, Federal Reserve Chairman Bernanke finally appeared to signal that the dollar would be defended, indicating in a speech that further interest rate cuts were unlikely. Interestingly, there was a body of opinion in the market that his reference to the dollar was a tip of his hat to high oil prices, acknowledging that dollar’s decline has helped push up prices. I share that view.

While the sell-off in crude oil prices will not be a straight shot down, further declines are likely. I am targeting a test of $120 per barrel by the end of the week, and my ultimate downside target, near-term is the $110 level. This price represents a 50 percent giveback of the overall gain from the low point on February 7th of $86.24 to the $135.09 high. This is referred to as a “fifty percent retracement” in trader talk, and is an old-school technical measure.

Yesterday’s losers are becoming today’s winners. While crude oil is down $12 from its high, gasoline prices continue to rise. This is good news for refiners, as their profit margins have recovered significantly. For investors seeking a way to profit, these stocks may be set to rise, as well.

These are, undoubtedly, painful times for consumers at the pump, but the demand response is encouraging. I believe in the coming years, maybe as soon as three, there will be real choices for consumers to purchase electric cars. Several major companies have announced plans to ramp up, on an industrial scale, batteries capable of powering vehicles at speeds and distances that will be attractive. Last night, on NBC Nightly News, the broadcast featured a peppy car that gets 300 miles to the gallon. Awesome. I hope oil producing countries see this and decide to invest their sovereign wealth wisely.

(See Kilduff discuss petro politics in the accompanying video).

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John P. Kilduff is Senior Vice President Of Energy at MF Global Ltd. He's also a CNBC contributor.