When traders sat down at their screens Monday morning they were greeted with what should have been a market-moving event, but prices continued their downward spiral from last week. Tropical Depression Two surfaced overnight and caused some brief buying interest, but at the end of the day September settled down 10 cents to $3.541 and October shed 10.7 cents to $3.812. September crude oil fell $1.15 to $69.45/bbl.
Traders are hearkening back to 2008. “If you remember when crude oil fell last summer from over $145/bbl, there were at least two major hurricanes [Ike and Edouard] in the Gulf and the market kept coming off,” said a New York floor trader.
“There is a similar dynamic and there is no reason for [natural gas] to rally. There is no incentive to use the news of the storm to promote a position.”
He added that “there is plenty of supply, the demand is not there so it [the storm] is not a great issue. Something major would have to be on everyone’s plate for there to be an issue with the market.”
The National Weather Service reported that at 5 p.m. EDT Tuesday Tropical Depression Two was about 400 miles west of the Cape Verde islands and was moving westward at 12 mph. Maximum sustained winds were near 30 mph and “some strengthening is expected during the next 24 hours.”
Meteorologists are skeptical about the storm’s development. “Any intensification over the next several days should be slow as there is currently a good deal of dry air and Saharan dust in front of this depression and sea surface temperatures are marginal along the projected path,” said AccuWeather.com meteorologist Carl Erickson. He added that “an elongated trough just to the northwest of the depression is helping to increase the upper-level wind shear over the eastern Atlantic. If the depression moves far enough to the north, this would also prevent it from strengthening much.”
Although present stocks of natural gas are more than ample, analysts point out that the threat of hurricanes is not just academic. “After four major hurricanes since 2005, daily production in the U.S. Gulf is now 6.75 Bcf/d. At this time in 2005 it was 10 Bcf/d,” observes Peter Beutel, president of Cameron Hanover. He admits that not all the shortfall is attributable to storms, but the Gulf accounts for a hefty 11% of daily U.S. production. “No matter how one looks at it, and even if storms can be obscured by economic conditions, the arrival of hurricanes or strong tropical storms in the wrong place can only have a bullish effect on production (by cutting it),” he said in a note to clients.
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