Hurricane Isaac Weighs on Crude Oil Prices

Crude oil futures declined on Monday, while gasoline futures rallied as Tropical Storm Isaac threatened the heart of the refinery industry in the Gulf of Mexico. Brent crude oil futures fell toward $112 per barrel, reversing from early gains as Tropical Storm Isaac shuttered refineries on the US Gulf Coast, which reduced demand for crude. Tropical Storm Isaac churned across the Gulf of Mexico and headed for the Louisiana refining hub, prompting U.S. energy companies to start shutting refineries ahead of the storm and raising prospects for a jump in crude oil stocks. The storm is expected to make landfall by Wednesday.

During Tuesday morning’s Asian session, oil futures prices are hovering above $95.30/ bbl in electronic platform with loss of more than 0.10 percent. Most of the Asian equities are trading down after world third largest energy consumer/ economy Japan have downgraded its economy through self assessment.

There are no economic releases from Europe today. Ahead of coming Friday and Saturday’s Economic Symposium and Fed Chairman Bernanke’s address global market is likely to remain volatile with a doubt of further easing by Central Banks.

Upcoming in the US , monthly unemployment and payrolls along with consumer confidence and housing prices numbers are yet to come which is an important parameter for Central bank for deciding easing. Markets are worried that the better than expected eco data that  Fed chairman Bernanke may not hint on easing in his Jackson Hole speech on Friday.

Germany’s Bundesbank is not in support for ECB bond buying program may continue to weigh on the shared currency. Oil futures may take negative cues out of it.

However, US economic releases in the form of consumer confidence and manufacturing index improvement can create a spike in oil prices in the US session. Most importantly, presence of an active hurricane season with tropical storm Isaac is likely to create concern of supply tightening which may support oil prices to trade high.

U.S. crude-oil prices reversed course Monday, tumbling as speculation about a release of strategic petroleum reserves trumped concerns about Tropical Storm Isaac’s path into the oil-producing areas of the U.S. Gulf Coast. Crude-oil and gasoline futures aimed higher as Tropical Storm Isaac passed over the Florida Keys and into the Gulf of Mexico. But concerns of Isaac’s toll on production quickly turned to the potential for a release of oil from strategic reserves. In recent days news reports said that the White House is considering a release due to the latest rally in oil prices towards $100 a barrel in the U.S. and $120 a barrel overseas.

Ahead of hurricane Katrina’s seventh anniversary on 29 August, people in Gulf region are planning to evacuate and energy plants are likely to shut production for the time being. As per US Energy department, crude oil stocks are likely to fall along with gasoline but in a slower pace than prior week as refiners capacity utilization is likely to contract in active hurricane season. Overall, trend for the day is looking bearish till European session, whereas a spike is expected in the US session.

Unexpected move by storm Isaac may change the price direction however.

Gas futures are hovering above $2.657/mmbtu with gain of more than 0.20 percent from yesterday’s closing. The Gulf of Mexico accounts for more than 7 percent of US natural gas production.

 But concern of declining demand is there from Residential and commercial sector. As per US energy department, natural gas demand has been decline by more than 5 percent in the last week.

Natural gas fell to a 2-month low, on speculation that production cuts in the Gulf of Mexico because of Tropical Storm Isaac will do little to ease a supply glut.

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