It is the middle of a long weekend indeed for US oil futures traders -- and reporters -- as the first major hurricane to threaten US oilfields in three years moves slowly and menacingly towards the coast of Louisiana. Traders were cursing the weather as Hurricane Gustav edged past Jamaica and Cuba as the weekend began -- but the storm is creating more volatility for their holiday planning than oil prices.
The underwhelming price response shows what a different world the markets are reflecting in 2008, compared to 2005 when Hurricanes Katrina and Rita wreaked absolute havoc on global oil markets, sending prices soaring by 10% or more as they tore through the Gulf of Mexico.
One very important fact: after five years of demand-driven inflation, crude oil futures have bloated to almost double the levels they were at in 2005, when those hurricanes destroyed more than a hundred oil platforms.
Back in August 2005, when Hurricane Katrina damaged 100 pipelines, destroyed 46 platforms and damaged 20 others, crude oil futures were trading at around $60 per barrel.
A month later, when Hurricane Rita, destroyed 69 platforms and damaged 32 others, crude was still trading at around $64.
Crude futures struggled to break through the $70 barrier both times.
Fast forward to 2008. This has been the year when crude came within touching distance of $150 and sparked the fastest recession in US oil demand since Reagan was sitting in the Oval Office. Going into the fall, most oil traders and suppliers are worrying about how to handle the market if oil prices drop through a trap door at $100 and keep fading away.
The US Energy Information Administration's administrator, Guy Caruso, told rep at Platts' Energy Podium in Washington last week that he felt oil prices could fall below $100 over the next 18 months.
Almost unbelievably for the average oil consumer anywhere in the world, OPEC members are thinking about taking action that would effectively stop oil prices from falling further when they met in Vienna on September 9, Iranian oil minister Gholamhossein Nozari also said last week.
The early verdict is that Gustav is a distraction from much bigger fundamentals that the market is still failing to cope with. As headlines are pushed out on Monday -- when Gustav is expected to slam into the Louisiana coastline as a category three or four hurricane -- it is possible that hurricane mania will grip the markets again.
It looks unlikely, though. Compared to the days of Rita and Katrina, the price of a gallon of gasoline is pretty rich already.
Perhaps we should wait until after the storm hits to write its obituary. There was no reaction to Katrina in the week before it hit, either.
Hi David, thanks for the comment. This isn't an obituary. I will leave the job of writing those to the folks working in the funeral parlor. This is an exploration of why, at this moment in time, the oil market has been non-responsive to the most monumental weather event in the US Gulf Coast since the catastrophes of 2005. Are you expecting to see a massive rally on when markets open for electronic dealing?
Too late for me to place my prediction, unfortunately. But to be honest, I was looking for an open about, oh, $1.19 higher. Funny that now we think a $3.00 move is ho-hum. There is a much greater tolerance for volatility.