blade5adj (26.36)

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Crude Update: Look to Short-Term Supply Shocks and Iran

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July 20, 2008 – Comments (5) | RELATED TICKERS: OIL , DBO , DUG

With news last week that high oil prices limited American consumer demand for oil, my speculation is that the only thing that will send crude prices back up in the short term is news on the supply side.

As news that we actually increased our inventory of crude rather than decreased it came last week, oil prices tumbled almost $19 from their high at $147 to trade in the $128 region last Friday. Because Fed Chairman Ben Bernanke and others noted that U.S. and potentially global demand would take a hit as recessionary (and for some depressionary) concerns loomed, many have lowered their outlook on oil prices. Thus, I see supply shortages to be the only short term threats to falling or at least stabilizing oil prices.

Tropical Storm Cristobal

This article on Reuters discusses the recent developments in tropical storm Cristobal, currently off the coast of the Carolinas. It is currently headed for the Gulf of Mexico, and around that area is where a significant portion of the United States refineries are. Much like Katrina wiped out a large portion of our refining capabilities and placed upward pressure on the price of gas and crude, expect a bad tropical storm now to do much the same

The threat alone of a possible storm that could even so much as disrupt the supply chain of oil could put some upward pressure on crude prices, as gasoline and oil inventories are still at five year lows. The inventories are meant to provide a buffer to insulate American consumers from gasoline prices being wildly volatile, but as inventories continue to shrink, the possibility of spot shortages and potentially even gas lines loom. ........

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5 Comments – Post Your Own

#1) On July 20, 2008 at 6:20 PM, FoolishChemist (98.55) wrote:

Actually it's TS Dolly that is headed for the Gulf of Mexico. Cristobal isn't going to go anywhere near there. Dolly will weaken as it passes over the Yucatan but might reach a Cat 1 and strike southern Texas. Although they have seemed to strengthen more than the models predict so I wouldn't be surprised to see it Cat 2. Inconvenient but not like Katrina.

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#2) On July 20, 2008 at 6:28 PM, blade5adj (26.36) wrote:

Thanks FoolishChemist. Reuters updated their story since I posted originally posted it, although it's possible that I misunderstood. I mentioned Katrina because I figured people would remember the news about all the refineries and how gas went up. It's a great thing it won't be anything like that.

I'm no weather man, so it's good that I have readers like you :)

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#3) On July 20, 2008 at 6:38 PM, GS751 (28.60) wrote:

I think there are many things that are driving the short term and long term price of crude oil. I am guessing that by saying supply side you are talking about politicial unrest also.

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#4) On July 20, 2008 at 8:16 PM, blade5adj (26.36) wrote:

Well, by supply side I mean the ability of the countries/companies producing oil to get that to market, whether that being a gas station or simply to the United States. So political unrest falls in to that category, because if there were to be more Nigerian attacks on pipelines, that would limit Nigeria's abilities to gather oil and transport it to the United States. At the same time, if we weren't able to refine our oil to get it to a usable format (i.e. some sort of storm limits refining capacity), that would also affect supply.

Demand side would be how much oil and gas Americans want to consume, and at what price they will do it. For instance, you far less likely to take that extra 50 mile trip to go see grandma if gas is really expensive (you're weighing cost vs. benefit).

Was there a specific instance of political unrest you were talking about GS751?

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#5) On July 20, 2008 at 8:30 PM, lquadland10 (< 20) wrote:

Weather will affect many things. Insurance co. Oil and they will say it is global warming. But, is it. The sun seems to be developing a severe case of acne and it's not too happy about that. And if the Sun is in a foul mood, you can count on we her on planet earth hearing about it. While the Sun is some 93,000,000 miles away (thankfully), we feel the effects of any bad days it may be in. When such happens, scientist Roger Remy calls such mood breakdowns as "making mayonnaise", or having eaten some bad mayonnaise. Whatever!

Let me tell you what we do know- scientifically.

1-The sun has an eleven year cycle.
2-Galileo was the first person to tell us this when he invented the telescope in 1610.
3-The cycle has a low end acne break out on the face or surface and a high end.
4-Bad things happen when the high end of activity breaks out and the acne boils fester big time!.
5-Since 1940 the festering peaks or outbreaks have become more severe.
6-In this current cycle which was to be in it's low activity in 2005, the Sun went nuts! How about the massive solar radiation storm in March 1989 that took out the Hydro-Quebec power grid putting more than 6,000,000 Canadians in the dark? Coincidence? All this makes the Al Gore concept of Global Warming seem a bit trivial doesn't it! I mean as little as 0.5% increase in the Suns energy would take out all of our satellites and where would we be without our Blackberry? How much firepower advantage would our army have with "unguided missiles"? 3-There were other weird weather events as well. A tornado struck New York City in August, inspiring the tabloid headline: "This ain't Kansas!" In the Middle East, an equally rare cyclone spun up in June, hitting Oman and Iran. Major U.S. lakes shrank; Atlanta had to worry about its drinking water supply. South Africa got its first significant snowfall in 25 years. And on Reunion Island, 400 miles east of Africa, nearly 155 inches of rain fell in three days—a world record for the most rain in 72 hours. So yes always pay attention to the weather and sun spots when buying and selling stocks. It does matter.