Analyst: Terrorist-Induced Energy Price Spurts Only Short Term

Prices for natural gas and crude will shoot up in the short term, but the upward movement isn't likely to be sustained for the longer term in the wake of last Tuesday's terrorist attacks that destroyed the World Trade Center in New York and badly damaged the Pentagon near Washington D.C., according to Raymond James & Associates.

"Clearly, there will likely be a short-term, knee-jerk reaction that drives both oil and natural gas prices sharply upward. In London, we have already seen a $3 increase in oil prices. Additionally, we are likely to see a mild 'hoarding' phenomenon drive up local gasoline prices and the prices of other refined products," energy analysts for the firm wrote in an "Equity Research" note last Wednesday. But, "we are not likely to see a significant longer-term fundamental impact upon oil or natural gas prices result from this attack."

However, "this single event could provide the impetus to longer-lasting economic impacts and finally spiral the U.S. economy into a full-blown recession," Raymond James warned. "Of utmost concern here is the possibility that this disaster exacerbates the current economic downturn."

If that should happen, "there will certainly be a negative impact on oil and gas," the company cautioned. It predicts that consumer confidence "is likely to drop sharply in the coming weeks," which could "sour" consumer spending.

Other sources took an opposite view, suggesting the attack on American financial and political institutions and way of life could energize the American consumer to defend the system and thwart the terrorists' goals by increasing spending. "Striking Americans at home -- where they live and work -- could have the opposite of its intended effect," one veteran analyst said. "People are likening this attack to Pearl Harbor. If you remember, that attack woke the sleeping giant. The rest is history -- our history."

But Raymond James doesn't see it that way. The brokerage firm said the expected short-term spurt in energy prices following the twin tragedies will likely serve to depress the nation's economy even further. "This, too, could be a negative confluence at a time when the economy is faltering."

In the long term, "it would be safe to assume the supply-and-demand picture, at this point, is generally unchanged for oil, gas and power by these events," Raymond James said. "Unlike previous national events that tend to be supply-chain induced, this time around we see little to lead us to that conclusion. If anything, we think...that the U.S. economy could actually begin to move in a more negative fashion based on yesterday's news. This could affect energy demand and further weigh on consumer outlook. At any rate, we think deeper problems exist in the U.S. economy, which may be exacerbated by yesterday's events."

As for energy investments, "clearly the events of the next few weeks will more than likely push back any energy demand recovery investors had been hoping for [by] at least a few more weeks to months. Commodity prices will be driven by CNN and the like [media reports] rather than supply and demand the next few days, although hoarding could have a very short-term impact. But keep in mind, this too shall pass."

Raymond James said its report was not intended to help investors "scoop or front-run a tragedy," but was provided so they could start "rationally coping with irrational events."

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