| Welcome to this issue of Fast Break Ask an Expert. Today's author is Phil Flynn. Phil is Vice President, Energy and General Market Analyst with Alaron Futures and Options and is one of the world's leading energy market analysts. Phil heads the Alaron Energies Futures Brokerage Division offering brokerage services to individual investors, professional traders and institutions. Phil provides up-to-the-minute investment and risk management insight into global petroleum, gasoline and energy markets. Phil's market
commentary, fundamental and technical analysis, and long-term forecasts are sought by industry executives, investors and media worldwide. [more] |
Get daily research letters from Phil Flynn of Alaron Trading
Phil is one of the world's leading energy market analysts, providing individual investors, professional traders and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline and energy markets. Phil's market commentary, fundamental and technical analysis, and long-term forecasts are sought by industry executives, investors and media worldwide. Now you can get this highly sought after analysis with your daily research newsletter from Phil Flynn. Learn more about this complimentary offer and sign-up
today. |
Today's Questions
Mike from New Jersey asks:
I have been a student of the markets for a while, and I have noticed what factors make a bull market, fundamental backdrop and technical strength of the market. Do you think this secular play will last longer than anyone thinks. Also do you think Oil at $200 is a crazy thought?
Dear Mike,
Thanks for writing. Let me answer your last question first if that's ok. Is $200 a barrel for oil is a crazy thought? Well Mike I am sure some people would want you in a straight jacket for even contemplating such a thought, but are you crazy? It wasn't too long ago when people thought I was crazy for saying oil would exceed $40 a barrel. Then they said I was crazy for saying oil would hit $50 a barrel. Now they say I am crazy for saying oil will hit $75 a barrel. And now it appears with recent events in Iran, Nigeria, Russia and the Ukraine, I just might not be crazy enough. Or maybe it's because all the other traders are just too sane to accept the new reality
in the world oil markets. Mike, I may be crazy but it just might be a lunatic you're looking for. And let me tell you after years of trading and analyzing oil, I am still crazy after all of these years. But Mike thinking $200 a barrel is certifiably crazy. I suggest either deep intensive therapy or at the very least get off the off the sauce. ........No, Mike I am just kidding.
The truth is that these types of wild price projections which actually seemed totally unfathomable just in the last few years have now become not so out of the ordinary. Crazy price projections of higher prices gained some credibility in the press with Goldman Sachs talk of a " Super Spike" and a price projection of $100 a barrel. The story shook the markets and became the topic of conversation. Let's forget the fact that it took a while for the Goldman Sachs analysts to jump on the bull oil bandwagon and yet when they did they did it in style. The "Super Spike" was now in the lexicon of the market and it was as Wall Street finally started to take the oil
bull-market that was almost 5 years old seriously. But the truth is that Goldman Sachs had underestimated the market for most of the bull-run in oil.
Of course oil has yet to hit $100 a barrel. And when prices fell there were snickers and snide jokes on Wall Street as the market corrected. Yet the truth is the recent rise in price has wiped those snickers off their faces. With oil barreling back towards $70 a barrel, once again $100 a barrel doesn't seem so outlandish. |
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Word From Our Fast Break Author Get daily research letters from Phil Flynn of Alaron Trading
Phil is one of the world's leading energy market analysts, providing individual investors, professional traders and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline and energy markets. Phil's market commentary, fundamental and technical analysis, and long-term forecasts are sought by industry executives, investors and media worldwide. Now you can get this highly sought after analysis with your daily research newsletter from Phil Flynn. Learn more about this complimentary offer and sign-up
today. |
This brings me to the first part of your question. You said you have noticed what factors make a bull market. And you have seen the strong technical strength of the market and wonder if this is a secular play that will last longer than anyone thinks. Well Mike by asking a question like that I know that if you are indeed crazy, you are crazy like a fox! You have hit on the absolute beauty of this market and understand why it can go a lot further than people have thought in the past. In some ways we are watching a rebirth of a market. It's
almost like watching an explosion in the cosmos, or seeing Hailey's comet or the birth of a star. We are seeing the rebirth of a major commodity. We are in the mists of the revaluation of the price of a major commodity.
Commodities markets usually swing though cycles. Usually running from all time highs to all time lows and then off to find a new all time high again. It seemed for oil we were locked into a long-term range from $40 to $10 and back again. When Crude oil took out the Old Persian gulf war highs it seemed that this market had broken out. It is now stretching its wings to find that new all time high. Is it $100, or even as crazy as $200? Well right now there is no sign of stopping. Long term who says $200 is crazy?
It is obvious that the fundamental landscaped has changed in the oil. A decade of cheap prices has created an environment that led to under investment in the oil industry. Remember OPEC crying poor mouth in the late 1990's? The old cartel was like a pathetic lion that lost its roar. People took oil for granted. It was cheap and it was plentiful.
Yet the emergence of cheap oil created demand. Countries became addicted to cheap oil. Obviously the one country that has made the largest impact on the price of oil was China. Cheap oil helped create the China industrial revolution. China went from being an oil exporter to a major oil importer. And now the world oil producers can't keep up.
World oil producers are feeling the power of a full deck of cards in their hands. In fact we are seeing that the fumes of oil profits intoxicate them with power. Oil producers are using their advantage in current world affairs. Take Iran for example, which is basically thumbing its nose at the world community and daring us to do anything about it. They obviously think we wouldn't dare to not take their oil.
What about Russia and their showdown with the Ukraine? Did that not send shockwaves though Europe? And the high price of oil has obviously gone to the head of Venezuelan President Hugo Chavez who is using his oil money to spread his socialist propaganda throughout the region. Yet as bullish as these short-term geo-political events are and as bullish as the supply and demand fundamentals you would be crazy to believe that this is going to go on forever? The Truth is what goes up must come down!
Frank from Maryland asks:
Will a disruption in oil flow from Iran due to proposed UN sanctions (or worse) cause oil company stocks to rise in value due to their present reserve holdings in a now scarcer commodity, or will this cause the oil company stocks to fall in value(price) due to less oil available to sell to the public possibly causing a reduction in their profits?
Dear Frank,
I am heartened that you are so concerned with the health and wealth of the big oil companies. What a guy! It's nice to see you are a caring individual. Most people of course wouldn't think twice about the well being of oil companies and even try to take their profits away. I am sure it has nothing to do with maybe owning their stocks. The truth is that history has shown that oil companies stocks do very well in time of tight supply. When demand outstrips supply those with their hands on the product tend to do very well. If Iran does shut off supply or if we have a disruption from Nigeria, those companies with the higher reserves should do better. Yet if the price
spike in oil causes an economic shock or slowdown and slows demand than those stocks could fall fast. Then of course you can hold a tag day or a bake sale for the big oil companies.
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About
the Author
Phil Flynn is Vice President, Energy and General Market Analyst with Alaron Futures and Options and is one of the world's leading energy market analysts. Phil heads the Alaron Energies Futures Brokerage Division offering brokerage services to individual investors, professional traders and institutions. Phil provides up-to-the-minute investment and risk management insight into global petroleum, gasoline and energy markets. Phil's market commentary, fundamental and technical analysis, and long-term forecasts are sought by industry
executives, investors and media worldwide.
Phil and his energy team were one of the first to predict that global crude oil prices would exceed $30/barrel in the year 2000, a correctly predicted market milestone that has highlighted the economic scene in the new millennium. Phil also called the rise of retail gas prices in 2001. Most recently, Phil Flynn has again accurately predicted that global crude oil prices would reach close to $40/barrel ($39.99/barrel) in 2004. Through hundreds of media interviews, Phil Flynn and Alaron Futures and Options have become familiar names in living rooms and boardrooms worldwide. The world's print, broadcast, online media and small businesses have come to rely on Phil's
accurate and animated forecasts, analysis, speculative and hedging opportunities. |
For
Our Fast Break Readers
Get daily research letters from Phil Flynn of Alaron Trading
Phil is one of the world's leading energy market analysts, providing individual investors, professional traders and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline and energy markets. Phil's market commentary, fundamental and technical analysis, and long-term forecasts are sought by industry executives, investors and media worldwide. Now you can get this highly sought after analysis with your daily research newsletter from Phil Flynn. Learn more about this complimentary offer and sign-up
today. |
Disclaimer
The Commodity Futures Trading Commission has asked us to also advise you that trading futures is not without risk. While there is opportunity for incredible wealth building, there is also the risk of losing even more than you invested. Of course, that's not unlike most other businesses. But informed traders are the best traders! Opinions expressed by Fast Break authors are not those of FutureSource.
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Dont get married to your position. Remember if you're married to a postition it's till death do you part.
-Phil Flynn
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