It's a disconnect that has some oil traders shaking their heads, even while other oil industry pros say the condition is warranted. Oil is sloshing around in global markets, but its price remains relatively high at around $50 per barrel.

Case in point: Rotterdam, Europe's largest port, is running out of space to store crude oil, Bloomberg News reported Wednesday. Rotterdam can store about 75 million barrels of crude oil, or about a five-day supply for the European Union, which in 2009 is expected record consecutive demand declines for the first time in 25 years.

Meanwhile, U.S. oil inventories are at or near three-year highs. And yet, the price of oil hangs above $50 per barrel, trading up $1.01 to $50.93 on Wednesday at mid-day. Unleaded gasoline averages about $2.05 to $2.15 per gallon in the United States, according to gasbuddy.com data.

$50 oil: A paradox

To be sure, oil's still down about $100 since hitting the truly outrageous record of $147.27 per barrel in July 2008 during the leveraging bubble, but $50 still is an historically high price for oil. Add U.S. and global recessions to the mix and it appears to be an anomaly. Energy Trader Jim Dietz argues that contradiction has to be corrected, and he believes it will be to the downside.

Dietz argues one of two things has to occur: either oil demand has to increase or the price of oil has to fall. Dietz has calculated that the price of oil will fall, and is short oil, with numerous monthly contracts. He expects oil to retest lows below $40 by mid-year. Or as he puts it, "Reality will reappear soon."

Veteran oil analyst Matt Simmons, founder of Simmons & Co., a Houston-based investment bank, holds a different view. Simmons argues oil's price decline from record-highs has taken many oil fields out of production. That deceased production, plus aging oil fields and the credit crunch's impact on oil exploration, are likely to lead to a spike in prices, after both the U.S. and global economies resume growing. With the above in mind, investors seeking to "get ahead of the pack" or anticipate the economic recovery, are positioning themselves in oil now, which is boosting its price above where it would be, given current, relatively light demand conditions.

Economic Analysis: The "get ahead of the pack thesis" appears to be the most plausible argument regarding oil at $50 per barrel amid an oil glut. However, that's not to give short shrift to Dietz's argument: if the U.S. and global economies do not show signs of rebounding in the second half of 2009, traders and investors who bought oil at $40 to $45 may start to exit those positions, at which point Dietz's sub-$40 prediction would come into view. The dollar, of course, also remains a factor in oil's price (a falling dollar boosts the price of oil), but so far the dollar is holding its own against the world's other major currencies despite record monetary stimulus.

Hence, it appears GDP will decide oil's fate: rising U.S. global GDP -- including signs that the recession has bottomed -- will push the price higher; a lack of growth, and oil trends lower.


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tonsu97

trevor, "Sheeplehereder" If this example of spelling is an indication of your education, I would guess you studied economics in a mail order course. You fail to match you idle commentary with FACTS. Any Neanderthal can throw a stone.

January 22 2011 at 7:09 PM Report abuse rate up rate down Reply
1 reply to tonsu97's comment
Trevor

tonsu, unfortunately for you sheeple are not real adept at stone throwing. Perhaps with a little more effort you could become my typist?

January 22 2011 at 8:18 PM Report abuse rate up rate down Reply
pvigilante

we spend so much money on education and its not working. whats obama's solution more money. New York and New Jersey are broke because of all the money we spend on education. Look at Camden, Newark, East Orange it goes on and on Millions upon millions down the drain. More money is not the answer. If the parents don't value education and don't push it at home it will never work. Obama is a disaster and a joke. unfortuantely its our bad joke.

January 22 2011 at 5:52 PM Report abuse +1 rate up rate down Reply
1 reply to pvigilante's comment
Trevor

Nobody values something paid for by someone else the same way they value that which they paid for themselves.

January 22 2011 at 6:26 PM Report abuse +1 rate up rate down Reply
tonsu97

I think some of the negative opinions expressed thus far demonstrate the problem that we have in the good ol' USA. Our population is becoming less educated by the year and economic principles that should be apparent are turned into evil representations of a bad government. It took 2 terms of a poorly led administration to lead us into a terrible recession. Massive borrowing from China to support a sagging economy plus two Wars without asking the citizens to "feel the pain" put us into unprecedented downward spirals. We were in danger of losing some of our largest employers and taking us even further when our Government, starting with a suddenly enlightened Bush and extending into the first term of Obama, kicked in incentives and Government loans to stabilize the situation.Then steps were taken to put controls back into our banking and Financial communities in order to stop the bleeding and loss of confidence. Slowly, with the Republicans dragging their feet all the way, the economy slowwed its plunge and began to right itself. The recovery is well under way as we note that the Dow Jones has gained an admirable 46% since January 2009. America's Corporations are reporting record earnings and people who are employed are gaining income through bonuses and profit-sharing. There are jobs available but they are jobs requiring an education. Sadly, many of our young people are dropping out of high school and ,if attending a college, are typically taking non-math oriented studies, which makes them not able to be considered for the employment that is available. Blame? Try the Bush administration which took funding away from education . The Conservatives will do it again if they gain any further control of our Congress. This isw why we need to support our President! Our future as a Nation depends on it.

January 22 2011 at 4:36 PM Report abuse -1 rate up rate down Reply
3 replies to tonsu97's comment
grumpyskaggs

To comepet with China you will have to reduce wages to 2 dollers and hr. no benegfits no health and safity rules no environment concerns .Only then can we comepet with China.Obama needs to get jobs back to this country even if you have to tax all goods comeing in.If we do not have jobs for people to make money whos going to buy all the junk. Wake up all you free trade nuts. What we need is fair trade laws. Alot of these Countrys have laws restricting our good going into theres. We need to put the same laws on there goods comeing to the U.S. .

January 22 2011 at 4:26 PM Report abuse +1 rate up rate down Reply
1 reply to grumpyskaggs's comment
Trevor

hile that may be true of the fe jobs in labor intensive indsutries that require little skill, those are the jobs e want the Chinese doing.

January 22 2011 at 4:58 PM Report abuse -1 rate up rate down Reply
mccoy

Why hasn't he been doing this prior to now? Oh yeah he needs it for his high speed speeches with the telepompter for he can motivate the sheep for votes. What a loser he is. That's right people he thinks we are dumb and will fall for his crap again.

January 22 2011 at 3:30 PM Report abuse +1 rate up rate down Reply
lhudson828

Obama is impressed with the degree of advancement in Asia and China. Perhaps its because they have a drive that does not include the demands that regulatory requirements is doing more to stop growth than anything else in American history.

Too, Obama is doing nothing new. We have heard the same ole jive two years ago. He is much on talk and has little backbone to do what needs to be done to get the engine of progress going because he has proven he can't be trusted as a captialist probusiness oriented president. GE's CEO comming on board only demonstrates that the socialist progressives have infiltrated the corporate structure further than necessary. The more that come out from under their rocks and are identified the better for this country. These enemy's of constitutional government where representative government has limited democratic power, need to be named and prevented from have government careers or political ambitions.

January 22 2011 at 3:15 PM Report abuse +4 rate up rate down Reply
dc walker

Immelt - GE is on a barge - translation we will go to any country with the lowest labor rates. Obama, gave %550 million to GM (YOUR auto company) to build clean air auto engines in Mexico employing 1200 Mexicans instead of people in the US.....the more things change the more corrupt they remain.

January 22 2011 at 2:25 PM Report abuse +4 rate up rate down Reply
joan

I see they failed to write in this news article about the big company ceo's meeting with the head guy from China. What does them meeting with the guy from China have to do with creating jobs in America. In other words, it's to lay off more people in our country to give the work to China. The CEO of Intel, Microsoft and GE were some of the big one meeting with them.

January 22 2011 at 2:12 PM Report abuse +4 rate up rate down Reply
Geoff

Actually, Obama should not be looking towards China and Southeast Asia to learn lessons on economic competitiveness. After all, much of the trade advantage they have over us is based on slave wages; counterfeiting; currency manipulation; export subsidies; and lack of intellectual property enforcement. Instead, we should be taking lessons from one of our allies across the Atlantic that has a similiar economic and social system: Germany. Over the last decade, Germany has cut its government deficit; eliminated the minimum wage; reduced welfare entitlements; and encouraged private spending in research and development. Most Americans are familiar with Mercedes or BMW; but the real strength of the German economy is in its high tech manufacturing of machine tools and robotics by mid-sized companies that most Americans have never heard of. They sell billions of dollars worth of machinery to China because they are cutting-edge products that the Chinese cannot buy elsewhere. These products are made in Germany by a highly-skilled workforce, and are not out-sourced. As Americans, we should forget about the growth of small businesses i.e. family-owned pizza parlors or bakeries, and focus on our own mid-sized companies that produce high tech goods. Yes, we can and should learn something from the Germans.

January 22 2011 at 2:05 PM Report abuse +3 rate up rate down Reply
notoobamaagenda

Obama has NOT done one thing in the last two years, but advance his LEFT WING RADICAL Agenda; therefore, the LIAR IN CHIEF, will not do anything but spread Obama BS Propaganda.

January 22 2011 at 1:45 PM Report abuse +7 rate up rate down Reply