Gustav downgraded before landfall, oil slides, easing likelihood of hike

Looks like folks can breathe a sigh of relief… for now.

The NHC downgraded Gustav to a category two hurricane this morning, providing relief to a Gulf area that had been battered just 3 years ago by Katrina.

At 10am EDT, oil was trading down nearly $3/bbl while gasoline shed 6-cents.

Looks like there shouldn’t be any hike as a direct result of this storm… however, we are still waiting on damage reports from LOOP, offshore rigs, and refineries on the mainland. Any damage does have the potential to “shock” the market.

Stay tuned!
Patrick

3 Comments

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  1. It was nice travelling to Ohio over the weekend. I filled up my tank in Toledo at $3.40 per gallon. I have come to believe that Michigan gas prices are a complete rip off.

  2. Yeah, we really lucked out on this storm. When they said it was going to turn West and move along the Louisiana coast as a Category 4 or 5, I thought it was going to be a major problem. There are a lot of refineries (plus the LOOP) that would very likely be damaged.

    Now they have the problem that Hurricane Hanna is blocking the shipping lanes for the Gulf until Friday. So, if the LOOP survived Gustav, it probably won’t be until Saturday – Monday (top speed is 18mph, but I have no idea where they are waiting out the storm) before they can get a Supertanker in to deliver. I wouldn’t want to drive 1/4 mile long, 600,000 ton ship on a calm day; I couldn’t imagine 50+mph wind and 20+ft waves.

    Unfortunately, as soon as Hanna moves out of the way, the next storm (Ike) will be rolling in. It looks like it will be at Cuba by Monday and should grow to hurricane strength before then. It seems unlikely that the rigs in the Gulf will be able to get restarted this week before they would need to start shutting back down and evacuating for Ike. The refineries might be able to fire up for a few days, but they would most likely run out of crude before long.

    And to make things even worse, TD 10 which is projected to become Tropical Storm Josephine today (and a Hurricane by the weekend) is a few days behind Ike. So, it could potentially be 2+ weeks before everything can be fired up and operational, assuming none of the storms cause any major damage.

    Damage or not, we will eventually run into a supply issue. Our Country has no way to compensate for the Gulf of Mexico being blocked off. We really could use 2 pipelines from the Carolinas going to both the Midwest refineries and down to the Gulf (or at least extend the pipeline from New York into the Midwest). That way we could at least get crude to refineries if the tankers can’t get to the LOOP or Houston. It’s easy for people in Michigan to forget that at least 75% of the gas we use in the State is either refined along the Gulf Coast or refined in the Midwest with crude that came up from there.

    Because of Monday being a Holiday, we didn’t have any wholesale price change yesterday. It looked like the market was down big yesterday, and it is down huge today. I have no idea what kind of change we will see tonight. It doesn’t really seem logical for the oil companies to follow the drops in the market if they know that their supply is quickly dropping without a way to catch up on them.

  3. Wholesale prices went the “realistic” route and dropped 3 cents for brand and 5 for unbranded. Rack prices are now 28 cents higher then the futures market.

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