As the Oil Turns
The oil markets are in a state of flux because there is uncertainty on what should be focused on. A multitude of perhaps major price impact issues are basically twisting in the wind. Okay, just another bad hurricane pun but Irene is already having a major market impact. The market runs back and forth, fears of demand destruction to the increasing chance that Irene could also be a threat to supply. While the East Coast is home to only 7% of US refining capacity, just ask drivers around Chicago the impact the shutdown of just one or two refineries could have here! Not to mention the real possibility that New York Harbor could close, disrupting imports and exports from the NYMEX delivery point for RBOB and heating oil futures. Already we have seen a lot of spread activity whether it is selling the crude and using the products or buying the front end of the curve in oil and products and selling the back. A direct hit on New York harbor could be a major ecological disaster with tons of chemical plants and refineries and the like.
So far the impact that we know of has already made some impact and Reuters News breaks it down for us. Reuters says that, "Oil terminals, refineries, pipelines and nuclear power plants from the Bahamas to Rhode Island are braced for Hurricane Irene on Thursday. The major Category 3 storm with winds of 115 mph (185 kph) roared through the Bahamas on a path expected to take it up the U.S. East Coast by the weekend. Unlike a storm in the Gulf of Mexico, an East Coast storm does not threaten significant U.S. crude oil and natural gas production. The Department of Energy calls the refining region PADD 1. It is the second smallest of the five U.S. refining regions, with most of its fuel being supplied by pipeline from the Gulf Coast or tanker ship from Europe. But there are six refineries and numerous storage and shipping terminals on or near the coast. There also are six nuclear plants on or very near the East Coast, and operators were preparing them for a possible visit by Irene in the next few days.”
Now back to the meeting at Jackson Hole! Fed Chairman Ben Bernanke speaks today and if he surprises the market with a QE3d, then get ready to buy everything commodity! Will the Fed also announce that it will reinvest or perhaps try to drive down the end of the curve to stimulate more investment? Or will he blame Trichet for raising rates or the Chinese for destabilizing the global economy with their currency manipulation. Bernanke will bore but after Trichet speaks the market will roar. Oil prices also moved on the macro following stock up and down. Add to that we have the promises of the Libyan rebels to restore full Libyan production by the end of the year. It is possible that if the storm does little damage to the supply equation oil prices could tank next week early. If we see damage, they will probably rise.
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.