Hurricane Isaac shutters Gulf oil production

Flood Warning

The Wall Street Journal reported that the Group of Seven leading industrialized economies appealed to the world's major oil producers to boost output as fears about Hurricane Isaac and tensions with Iran pushed up oil prices. The G-7 nations — U.S., Canada, Japan, U.K., Germany, France and Italy — stopped short of coordinating a release of emergency oil stockpiles despite mounting worries about the damage from rising fuel costs on already weak economies.

Yet an early release from the reserve may have the opposite effect that political leaders may hope for. By trying to artificially reduce prices by a release, they may encourage more demand leading to a much larger price spike later if and when there is a more serious disruption of supply.

Crude oil market also has to focus on the economy as well and worry that a drop in US confidence could hurt demand. On the other hand, it could increase the odds for easing as traders wait for Federal Reserve Board Chairman’s Ben Bernanke’s speech at Jackson Hole not to mention today's GDP. Signs of easing could send prices higher. The European Central Bank President Mario Draghi has vowed to do “whatever it takes” to save the euro and is trying to raise stimulus hopes by saying that Europe needs to employ "exceptional measures" at times to ensure its policy can be effective. Yet beware when he said he will act within its mandate. So I guess that means whatever it takes within the mandate.

Yet a surprise crude build from the API may temper some rallies. The API reported that crude oil inventories rose by 5.46 million barrels and that was somewhat comforting considering that they could fall by 7 million barrels next week. The API also reported that gasoline supply fell by 2.40 million barrels — less comforting I suppose — and distillates up by 1.36 million barrels, a little bit better. I think next week’s draw might have been worse if it were not for more Canadian and US on land production.

Speaking of Canada and politics the Wall Street Journal is reporting that Ottawa increasingly is signaling that it will push China to open its markets more to Canadian companies as a condition for approving Cnooc Ltd.'s proposed US$15.1 billion offer for energy producer Nexen Inc.  All significant foreign investments in Canada are subject to Ottawa's review on whether they will have a "net benefit" to the country's economy. That subjects Beijing-controlled Cnooc's July agreement to buy oil-sands operator Nexen to a review process that could stretch late into the year.  Canada has reached out to Asia, and China in particular, for investment and as an alternative to the U.S., as a market for Canada's abundant oil and mineral riches. Ottawa has blessed a series of recent, smaller Chinese deals. But federal and provincial officials long have chafed at barriers to significant Canadian investment into China. Canada's Industry Minister on Tuesday suggested that better access to the Chinese market could be a focus in the government review.

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