Energy analyst discusses the outlook for natural gas and oil.
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. HAI managing editor Sumit Roy recently caught up with Flynn to discuss the latest developments in the energy markets.
HardAssetsInvestor: Natural gas has been rallying recently, and now it’s at a seven-month high. Is it solely cold weather that’s driving up prices?
Phil Flynn: A lot of it obviously is the cold temperatures. It’s been cold, and based on the weather forecasts we’re seeing, it’s not going to get a heck of a lot warmer. In the next two weeks, we should see some substantial drawdowns in inventory. Having said that, yes, it is definitely the cold weather that’s given us this dynamic move, but you don’t want to underestimate the nonheat-related demand. There is demand growing everywhere.
While the cold weather seems to be overshadowing that right now, it’s definitely a story that’s going to continue. Manufacturing businesses are going to take advantage of these low natural gas prices and you’re going to see the nonheat-related demand continue to grow.
It’s going to continue to astound people. Our exports are a lot stronger; we’re going to be seeing a lot of natural gas going to Mexico, and they’re approving additional exports a lot more quickly than anybody thought possible.
Weather’s definitely your headline, and we probably wouldn’t be moving up like this if it weren’t cold, but there’s definitely more to it than just the weather.
HAI: Do you think it’s too late for investors to get in for this winter run?
Flynn: I don’t think so. Obviously, we could see some pullbacks along the way. But to me, there could be significant upside left in this market. The only concern we have at the moment is that the market is a bit overbought and it might try to shake some people out. But having said that, we broke out of a major channel to the upside.
We really do seem to be gaining some momentum. While we might be able to pull back to $4, it’s interesting that before, a lot of people thought that $4 would be a ceiling. Now it looks like it could be the floor, long term. I could foresee a scenario, if some of these colder, long-term forecasts come to fruition, that we could very easily test $4.50. And we might even surprise some people and move a bit higher.
It’s awfully early to be having these cold temperatures. And we’ve been lulled to sleep in the past, because the last couple of years, we’ve had some warmer-than-average winters and cooler-than-average summers. We really haven’t tested this market on full cylinders.
The way the weather is right now, how early it is in the season, we may really test the limit of the demand side, and it may surprise some people on the upside; mainly because, as I said, we are seeing a lot of nonheat-related demand as well. You may see more surprises on the upside than the downside.
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