Gustav, Hannah, and Tropical formations, oh my!

Note: I decided I had better take a quick break from vacation. I was away hiking in Yellowstone, please forgive me for not posting.

When my phone got service yesterday, I had received numerous voice-mails informing me that a Hurricane “Gustav” had formed and could be effecting gas prices. Unfortunately I’ve been out of the loop- until now.

Gustav looks like it will be a dangerous category three or four when it hits Louisiana later this week. What’s this going to do to gas prices? Well, for the time being, the market is calm. One must realize that after Katrina, refineries and rigs have been much improved when it comes to large hurricanes. Also, refiners haven’t been producing as much gasoline as before Katrina.

With refinery utilization continuing to be much below 90%, any negative impact on Gulf refiners could be offset by all other refiners raising their utilization to 95%+. When Katrina hit in 2005, refinery utilization had been at 97.1%. With utilization THAT high and Katrina flooding refiners, there was no way that other refiners could up their production much. Last week, utilization was a measly 87.3%. Any capacity that goes offline could be offset by other refiners raising production runs.

Also, those refiners in the Gulf area have poured money into making their rigs and refineries better prepared for massive hurricanes. They didn’t just repair their facilities… they made them better.

The market may jump to its senses, but if we don’t see more than a 10-cent gain, you’ll see traders viewing that as a weakness in the market. We’re also helped by a continued gain in the U.S. dollar against the Euro.

It’ll be interesting to see what oil and gas does when trading opens Sunday.

I would definitely stay tuned here… I’ll be home early this week with more information as I receive it. We could see prices rise, but things are calm… for now! I see prices in GR falling to $3.70. Prices may continue their fall until Gustav gets closer to making landfall.

Patrick

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