To anyone following energy market analysis in recent years it is not a shock that high profile Alaron energy analyst Phil Flynn is bullish the complex. In a commodity market panel sponsored by Dow Jones Indexes and AIG Financial Products on Tuesday, Flynn gave his assessment on the energy complex and explained why the explosive rise in energy prices was not a bad thing as it signaled global economic growth.
While perhaps a tough pill to swallow, Flynn’s analysis makes sense and has been born out as rising energy prices has not sent the economy into a tailspin as some have feared.
His point being that commodities, crude oil in particular, are needed for economic expansion and expanding demand—and subsequent higher prices— signals that expansion. “Why did high energy prices not hurt the economy?" Flynn asked. “It represented global economic growth. China’s [expansion] was built on the back of cheap oil. High oil prices reflect a strong economy, it is a sign of economic growth,” Flynn said adding, “China became addicted to cheap oil and the U.S. became addicted to cheap goods.”
Flynn added that this argument is gaining greater acceptance and that the debate is now switching from can the market handle higher prices to whether we have enough supply to meet expanding demand.
He also dismissed the argument that the increase in speculative money entering the market was a significant factor in higher energy prices. “Speculators have not been a driver of the price of energy; they have been driven to the market by fundamentals.”
As for the price of crude, Flynn does not expect $100 crude oil, at least not this year. He expects crude to reach a high of $85 and sees prices rising $10 a year with it eventually hitting $100 in 2009. In other market tidbits, Flynn expects the crude oil/ unleaded gasoline spread to begin to correlate again after the recent divergence, which he attributed to refining issues; and he warns not to get complacent on natural gas, saying if the hurricane season picks up, natural as prices could double.
Comments (1)
I used to watch Phil Flynn from Alaron Trading in Chicago on FirstBusiness here in Ontario, Canada. We get it on the Fox Channel from Buffalo, New York over the airwaves. I've been reading his Energy Report every weekday and sense he is equally surprised in the rise in oil and energy products. You know it only makes sense that a growing world population is consuming more resourses. We here in Canada have alot of those world resourses and will do a booming business suppling what the world needs. People just need to go back to basics and a simplier way of life to withstand the high energy ( and food costs ) that are in our future. Get up and go for a walk and save some gas. Turn down that thermastat and put on a sweater. Make more meals at home instead of eating out. Play with the kids instead of plopping yourself in front of the TV or computer. And please, get a good nights sleep, you'll feel better in the morning. Here ends the lesson for today. Joan in Canada.
Posted by Joan Scott | February 22, 2008 1:11 PM
Posted on February 22, 2008 13:11