The market is taking in stride the first potential hurricane in the Gulf of Mexico this season as its seems a bit more worried about a government shutdown ahead of a looming deadline over the fiscal ceiling debate. Oil (NYMEX:CLX13) is having problems staying up even in the face of Tropical Storm Karen as the government shutdown reduces demand. While Tropical storm Karen is expected to hit Hurricane strength, she is not going to stay there long. Yet we have to be wary that the market is not underestimating this storm as its projected path puts it right into Louisiana and the entrance to refinery row.
While the price impact was muted, there are still risks. Oil seemed to hover worrying about weaker demand as the government shutdown takes its toll, yet at the same time the falling dollar is lending support. We know that with the government shut down we can get no job report, so it will be virtually impossible for the Fed to taper at the next meeting! And the fear that a taper before Christmas will shrink the Grinch's heart will mean that tapering is an issue for next year.
Reuter's News reports that Energy companies in the Gulf of Mexico started shutting in production on Thursday and were evacuating some workers as Tropical Storm Karen headed toward a crucial part of the basin, which overall provides nearly a fifth of daily U.S. oil output. The National Hurricane Center said the storm was expected to be at or near hurricane strength on Friday, and that it was expected to reach the U.S. Gulf Coast between Louisiana and the Florida Panhandle over the weekend. BHP Billiton said on Thursday it was fully evacuating and shutting oil and gas production at its two platforms in the Gulf of Mexico. It was the second Gulf producer to confirm a full shutdown and evacuation because of Tropical Storm Karen, behind Anadarko Petroleum Williams Cos said it had shut its 500 million cubic feet per day Canyon Station gas platform in the Gulf's shallow waters. Similar announcements were expected as Karen's projected path crossed two areas known as Mississippi Canyon and Green Canyon, where the bulk of the Gulf's deepwater oil and gas platforms are located.
They also reported that the Gulf Coast cash gasoline markets reacted to the storm as differentials rose on shutdown concerns, traders said. The Gulf of Mexico accounts for about 19% of U.S. daily oil production and about 6% of daily natural gas output, according to the U.S Energy Information Administration. Anadarko halted output at its Neptune platform, with capacity to produce up to 14,000 barrels per day (bpd) of oil and 23 million cubic feet per day of natural gas. BHP's second platform also is named Neptune, and it can produce up to 50,000 bpd of oil and 50 million cubic feet per day of gas.