The Baltic Dry Index is an index compiled by the London Baltic Exchange which tracks the cost to book cargoes of raw materials (iron ore and other metals, coal, grain, cement, oil etc) by sea across the world.
It's important because it is a leading indicator - it doesn't deal with the shipping of finished goods, but with the shipping of raw materials from which those goods are made. It's also one of the few indexes that is free of speculators - people only book freight ships if they have stuff to ship. The supply of ships is inelastic as it takes up to two years to build a new ship, therefore the index tells very quickly whether there has been an increase or decrease in demand for ships.
In other words the Baltic dry index is the best indicator there is as to what is going on with world trade. And where world trade goes, oil demand goes too.
The graph above shows the Baltic Dry Index over the last year, and you will notice that it peaked first at 11033 on 29/10/2007, and then fell to 5615 on 29/01/2008. The index then made another surge to 11689 on 5/06/2008 but has fallen back to 9012 on 18/07/08. The oil price doesn't track it exactly, due to the speculative element, but it did hit $100 in early Nov 2007, and fell back to $87 in last January, before powering up to $147 on 4/07/2008. Nymex closed at $128.81 on 18th July.
If the Baltic Dry Index continues to fall, it indicates demand for raw materials is dropping, which means orders are slowing down. The oil price will be bound to follow.