Is the oil market approaching an inflection point?

Investors in selected stocks -- and consumers who purchase gasoline -- certainly hope so. The price of oil has doubled in about two years, pushing gasoline over $4 per gallon in most parts of the U.S. and slowing what was an already anemic economy to a crawl (or worse) in the process.

Oil traded down $3.98 to $120.75 per barrel on Tuesday at mid-day. Oil hit a record $147.27 per barrel on July 11, 2008. Also on Tuesday OPEC President Chakib Khelil further fanned the oil price debate by stating that oil at $123 per barrel "is abnormal" and that prices could fall to $70-80 per barrel, Reuters reported.

Bullish case, bearish case

Given the link between oil's price and U.S. economic growth, BloggingStocks Tuesday asked two economists to outline the bullish and bearish cases for the world's most vital commodity.

The current head of OPEC, Algerian Energy Minister Chakib Khelil, seems to say the same thing once a month. The repetition does not make it more convincing, but he went back to it again this weekend.

According to the AP, his view of oil is that "the high prices do not reflect market conditions but rather other factors linked to the weakening dollar, market speculation, and the U.S. subprime mortgage market turmoil."

Recent studies indicate that there is much more at play than the dollar and traders trying to make a buck. Oil exports are falling in many countries. Last month, Indonesia said it would drop out of OPEC. It is not longer a net exporter of crude. Mexico says that some of its largest fields are aging and that their yields are down, perhaps permanently.

Even in Saudi Arabia the need for petroleum to build infrastructure and fuel cars is rising, keeping more oil inside the country.

As far as anyone can tell China, India, and the emerging markets draw as much crude now as they did when oil was below $70. Governments in many of those states are still willing to underwrite the cost of oil to help drive GDP with cheap gas and diesel.

Saying that supply and demand are not at work is a convenient way to mask greed, but it does not work.

Douglas A. McIntyre is an editor at 247wallst.com.

OPEC says no one should point the finger at it for $100 oil. The group's new president, Chakib Khelil, told Bloomberg, "There is enough oil in the market. It's the problems in Nigeria, in Pakistan, and the credit crisis caused by the U.S. subprime-mortgage market collapse that caused prices to increase.''

It is a distorted view. High prices will not cut demand.

That does not take into account the fact that the huge growth of energy use in a country like China is underwritten by the government. Thus, the dynamics of demand mean very little there. It does not take into account the fact that the use of oil for heating does not fall much if people are cold.

OPEC also believes that the hedging of oil against the dollar pushes up the price. But, the back of hedging might well be broken if OPEC announced new supply and "frightened" some of the speculation out of the market. Like shorts covering in a squeeze when the price of a stock moves sharply, many oil hedges would unravel, causing the downward correction to be magnified.

The price of oil sits in OPEC's hand more than any other single place.

Douglas A. McIntyre is an editor at 247wallst.com.