BY TIAN HUANG – MEDILL NEWS SERVICE
During our final trip to CME Group this quarter, we had the opportunity to speak to Phil Flynn, an energy analyst at Alaron Trading Corp. Phil was on the floor talking about oil inventories on Fox Business News.
Phil’s known in the industry for being accurate about the energy markets. When other experts were predicting $300 a barrel for crude oil, Phil was bearish before demand for oil and gas prices drastically declined. Here were some of his responses to our questions on the future of the oil industry and President Barack Obama’s green energy plan:
Q: Why has there been so much volatility in the oil market in recent months?
A: Crude oil has seen a history of boom and bust cycles, but this year, it was out of range. Prices were up not because of supply and demand but because of the financial crisis. As the banks were dying, people began to buy oil like they were buying gold; it became a currency of last resort. That kind of growth is unsustainable.
Q: What is your take on President Obama’s New Energy for America plan?
A: I think it could be a waste of a lot of money. The plans are capital intensive — a lot of capital is required, and capital is king right now. You can’t get cash and the government is going to take on all the risk. The problem is the plans aren’t focused. It’s a mish mash of goals: clean coal technology, solar energy, none of this is focused. It’s like rolling the dice. We need to get a plan we can all get behind.
Q: What do you propose instead?
A: I think the best energy plan is to lift restrictions on oil if you’re going to give advantages to other energies. Let them drill in Alaska and in other places. We’ve seen some of the most innovation during times when the oil industry wasn’t doing so well– let the market forces take over.
Q: You’ve been rightly bullish when others were bearish on the oil industry and bearish when others were predicting $300 a barrel for crude oil. What do you see for the future of oil prices?
A: We’re currently seeing an uptick in gas prices because of market forces. This has been the worst year for oil refineries in years, and those refineries have not sold enough gasoline, so their gas crack spread, which measures the profitability of converting crude oil to gasoline, has dropped. The refineries have closed for maintenance reasons, except they’ve being going through “extended” maintenance, but they are opening up again and the supply of crude oil is at a record high, so crude oil is cheap, which means cheap gas even if demand is up a little. It will take a major event for prices to not drop.