Come On Irene! Perhaps you missed the Gulf of Mexico but now you could wreck havoc in New York Harbor! Products are rallying against crude as traders price in the possibility that Hurricane Irene could shut some refineries on the East Coast. Just in case, buying is supporting products while oil twists in the wind trying to find its ultimate direction. The truth is that oil may have found a near term bottom as the stock market looks like it has found one as well. Last week as it appeared that stocks would never come back, what was panic selling now looks like capitulation. There still are hopes that Big Ben Bernanke will run his magical printing press but those hopes may be diminishing due to the rebound yesterday in durable goods. Now stocks are rallying with the realization that the selling last week was overdone.
Oil is also being weighed down by the progress of the rebel forces in Libya. Already the rebels are telling oil workers to go back to work and put a bounty on the head of Mr. Mad Dog himself! A great way to pick up a couple of million if you need it.
Fears of demand destruction should run high as Irene and her ferocious winds could do some major damage. We need to say a prayer that Hurricane Irene will turn and do the least possible damage. The AP reports that, "Irene could hit North Carolina's Outer Banks on Saturday afternoon with winds around 115 mph (185 kph). It's predicted to chug up the East Coast, dumping rain from Virginia to New York City before a much-weakened form reaches land in Connecticut. Finally, it should run out of steam in Maine by Monday afternoon. States already drenched from a rainy August could see flooding and fallen trees from Irene. A hurricane watch was issued early Thursday for much of the North Carolina coast including the Outer Banks. A hurricane watch means hurricane conditions are possible within 36 hours. Also, a tropical storm watch was issued for much of South Carolina's coast. Meanwhile, a new tropical depression formed far out over the Atlantic early Thursday, with the National Hurricane Center saying it would likely become a tropical storm later in the day."
Even without hurricane-force winds Chicago gas prices are popping. A cash market surge on reports of refinery compressor snag at a key gasoline-making unit at Husky Energy Inc.'s Lima, Ohio, refinery and an issue at BP Whiting, Indiana caused a spike in price in the Midwest region. Gas prices in Chicago have gone up as much as 20 cents overnight.
The Dow Jones Newswires reports that, "The price gap between the world's two leading oil benchmarks returned to near record highs Thursday as fresh supply disruptions propped up European benchmark Brent crude--the marker for more than half the world's oil. In the early part of the week, Brent consistently underperformed U.S. oil benchmark West Texas Intermediate in percentage terms, causing the spread to retreat from the highs hit in the previous week. Analysts had predicted a sharper drop in Brent crude than in U.S. crude after Libyan rebels stormed the capital Tripoli over the weekend, raising hopes that crucial oil exports could finally resume from the North African country. A sharper drop in Brent prices would have narrowed the spread between the two futures contracts. But fading hopes of a speedy capture of Col. Moammar Gaddafi as well as fresh supply disruptions in key oil producer Nigeria and ongoing issues in the North Sea have only further increased Brent's premium to WTI. ... Dow Jones says that ' Since the beginning of the year, supply bottlenecks at WTI's delivery point at Cushing Okla. and disruptions in Europe have pushed the two futures contacts apart, with the difference between the two contracts reaching an all-time high of more than $26 a barrel Aug. 19. Historically, the two oil grades have traded within $1 to $2 a barrel of each other."
Dow says that, "The unusual widening of the price gap has brought joy to West Coast refiners able to benefit from comparatively cheap WTI, but has proved disastrous for companies using the U.S benchmark to hedge their exposure to oil and its products globally. The big spread in prices has also raised questions over which of the two crudes is the more accurate global oil benchmark. In addition to the loss of some 1.3 million barrels of Libyan crude exports, traders are facing ongoing supply disruptions in the North Sea, where prolonged maintenance to major oil fields has resulted in delays and cancellations to several crude cargoes since May. Most of the maintenance was meant to be completed by the end of August, but traders have reported continued supply issues into September. Furthermore, Royal Dutch Shell PLC (RDSB.LN) Tuesday said some of its Nigerian crude supplies would be disrupted for the next two months due to several incidences of pipeline sabotage. Bonny Light, the grade of crude that has been affected in Nigeria, is of a similar quality to the type of oil Libya usually exports and is highly prized by refiners on both sides of the Atlantic.
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at firstname.lastname@example.org.