Oil's road back to $40 signals economic and job snap back: Phil Flynn

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BMO Capital Markets chief investment strategist Brian Belski argues one can be both a growth and value investor in the stock market.

Oil very well may be on the comeback trail, and that's good news for the global economic rebound.

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West Texas Intermediate topped $40 per barrel on Friday before easing back, proving many of the naysayers wrong.

OIL PRICES TOP $40 AMID 'FASTEST REBALANCING' IN HISTORY

The road back to $40-a-barrel oil was fraught with fear and uncertainty, but eclipsing that benchmark indicates the beginning of a strong recovery from the economic shutdown. The global economy crashed to a screeching halt as the coronavirus shut down the world, causing global oil demand to crater like never before.

OIL: WTI, BRENT & THE BATTLE FOR WORLD DOMINANCE

According to the International Energy Agency, global oil demand fell by a record 8.1 million barrels a day in 2020, and many feared that drop and the damage it caused would have an irreversible impact on the global economy.

OIL’S MELEE ON TREASURY’S RADAR, MNUCHIN TASKED WITH FIX

The crash in demand caused an unprecedented price slide to sub-zero for the first time ever. Fears of an insurmountable oil glut and a production war between Saudi Arabia and Russia threatened to overflow global oil storage hubs. At that point, few had hope that the economy — or oil for that matter — would be able to turn around from this tailspin.

OIL CRASHES 305% TO -$36.73 A BARREL

The crash reflected desperation and a lack of hope. Yet swift reactions by global central banks, led by the Federal Reserve, have helped stabilize and stimulate financial markets.

President Trump also did his part, helping negotiate an end to the Saudi-Russian production war that, in part, helped set the stage for the tremendous oil comeback.

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Even so, the American shale industry is deeply wounded.

Baker Hughes on Friday reported that the U.S. oil and gas rig count fell 10 to 189 this week, the lowest since June 2009, while gas rigs dropped by three to 75, the lowest on record in data going back to 1987. That was 701 rigs, or 72 percent, below this time last year.

Yet the increase back to $40 a barrel is a bright light and will allow some of those U.S. producers to begin a comeback.

Reuters reported that U.S. shale producers could bring back half a million barrels per day of crude output by the end of June. That means more jobs. The spike to $40 will allow some producers to sell futures and hedge their production and bring back laid-off workers.

U.S. gasoline demand is starting to recover by almost 3 million barrels a day from its lows. Demand in China is back to previous levels, and Europe appears back on track. Demand is rising in India as well, and this bodes well for the global economy.

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Phil Flynn is senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading 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. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at [email protected].

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