Oil: Buying Opportunity Of A Generation?

January 22, 2016

Phil Flynn is senior energy analyst and a futures account executive at Chicago-based The Price Futures Group. He is one of the world's leading energy market analysts and a daily contributor to Fox Business Network, where he provides market updates and analysis. Flynn recently sat down with ETF.com to discuss the latest developments in the oil and gas markets.

ETF.com: What do you make of this week's brief plunge in oil prices below $27?

Phil Flynn: We're being driven this year more by fear than reality. There's no doubt we currently have a glut of supply and have record inventories here in the U.S. We're also worried about the return of Iranian oil into an oversupplied market.

But those facts we've known for six months. We knew those facts when oil prices were $20 higher than they are today.

We're seeing prices go down because of the fear. And the fear, of course, is why the stock market has had the worst start to the year in history. We're getting this global meltdown in confidence.

That said, when we look at the oil numbers, overall demand growth last year was pretty spectacular. China had record demand. We're fearful about China, but it imported more oil last year than it ever had before.

ETF.com: What will turn around this market?

Flynn: What's going to turn it around is a boost of confidence. If we determine the global economy isn't going to fall off the map, then we have a good chance to rebound.

When you have crashing prices, it has consequences. We’re going to see more bankruptcies than we would have seen otherwise. We're going to see a bigger drop in U.S. output, because of this recent price drop.

Companies have already canceled $380 billion of energy projects over the last year. That's going to have ramifications at some point. The only question is, when is the market going to balance? Is it going to be the beginning of this year? Is it going to be later next year? Is it going to take five years, like some people are saying?

My bet is it could happen sooner rather than later, assuming we get some stability in the global marketplace.

If you think we're moving into a global recession, then you don't want to be long oil because the glut is going to last forever. If you, on the other hand, think that these fears are overblown, this could be the buying opportunity of a generation when it comes to oil.

Related Article: 'OIL': An Oil Fund Doomed To Fail

ETF.com: Assuming we avoid a global recession and the oil market balances, how high do prices go?

Flynn: Well, last time we had back-to-back down years in oil was in 1998/1999, and the next year we were up something like 105%.

Last year we ended around $37. If I'm right, by the end of this year, we should be pushing back toward $60, maybe as high as $70.

I know that number sounds ridiculously high right now. But remember we were at $60 as recently as July, even knowing a lot of what we know now.

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