All eyes on Hurricane Gustav
After soaking southwestern Haiti, Gustav is reentering the Caribbean Sea to gain its strength back south of Cuba as it makes its way toward the Gulf of Mexico. Current projections are for the tropical storm to regain hurricane wind speeds over the next 36 hours before growing to a substantial storm that may hit offshore oil and gas rigs and then the Gulf coast around Louisiana near the end of this weekend. As we saw with Fay, these storms are unpredictable (ASIDE: thanks Fay for giving my home state of North Carolina some much-needed rain!). But the potential production disruption has oil and natural gas prices up over 5% these past few days, moving toward $120 per barrel and $9 per MBtu.
A discussion of the hurricane and its potential to disrupt oil and gas infrastructure can be found at the oil drum website. Other oil developments came from the weekly EIA petroleum report showing a slight drop in crude inventories, a continued fall in gasoline supplies below average, and unchanged distillates in storage. The report would have been bullish except that it showed continued petroleum demand reduction from last year of 3.6% (led by reduced use of residual fuel oil for electricity generation, jet fuel, oils for petrochemical products and propane). Therefore, price movement really looks to be determined by Gustav and other potential tropical storms which may hinder Gulf of Mexico oil and gas rig operations.