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 market.
ETF.com: Oil surged from $26 to more than $51 before backing down slightly in the last few sessions. What's your take on the price action?
Phil Flynn: In the short term, we've pulled back a little bit because of the fear over the “Brexit” and fear about what the Fed may or may not do. That's weighed on market sentiment. But the things I was talking to you about a year ago―production destruction and lost investment―could drive us higher again.
Obviously, if the U.K. votes to leave the European Union, that could create turmoil that could push the EU into recession, and that would moderate our bullish forecast a little bit. But our sense is that despite the polls being very close, we think the U.K. is going to vote to stay; and if they vote to stay, I think you're going to get a really good rally at the end of the year.
We're still targeting that oil could hit $70 by the end of the year, maybe even close to $80. The reason we're so bullish is because if you look around the globe right now, everybody's talking about subpar economic growth―but if you look at the demand for oil, it's near record highs everywhere you look. If you look at India: record high demand. If you look at China: record high demand. Even here in the United States, gasoline demand has been at a record high.
Now, could you imagine what will happen if the economy starts to do a little better? Supplies could tighten a little bit―and this comes at a time when these major oil companies are canceling projects. They're still making big cutbacks and pulling in the reins.
Also, you still have some big financial problems at a lot of the smaller energy companies. A lot of them are continuing to file bankruptcy. A lot of them are cash-starved right now. Even though we've seen some stabilization in the rig count in the last two weeks, we think it's going to take some time for the U.S. shale patch to really ramp up production.
We get a sense that we’re in the process of falling behind the curve when it comes to the production-versus-demand argument, and we assume we're going to see the market further tighten as the year goes on.
If we can get through this next week without any other major disasters—whether it comes to the Brexit or the Fed meeting—the outlook looks pretty solid.