If one storm wasn't enough then perhaps two or more will be. Wicked weather and some new tension in the Middle East have the oil bulls running to the long side to seek shelter from the storm. While Hurricane Irene might rank among the 10 costliest storms ever, for oil it was a short term event. Yet a new storm just outside of the Gulf of Mexico could impact supply more than Hurricane Irene ever could. While many were focused on tropical storm Katia, oil traders were reacting to a disorganized storm cells just off the Caribbean. The reason is the odds are greater of this storm becoming more organized than Irene and its proximity to the Gulf of Mexico.

Even before the National Hurricane Center was putting odds on this storm becoming a cyclone, traders reacted swiftly. Traders are more worried about a storm in the Gulf of Mexico than they were about Hurricane Irene or the new tropical storm Katia because the unnamed storm could disrupt production in the Gulf of Mexico which is responsible for 31 percent of us oil production and about 7 percent of natural gas production. Not to mention 40% of US refining capacity. Tropical storm Katia looks more likely to go up the East Coast like Hurricane Irene did and we know now that can hurt demand more than supply.

At the same time there are new tensions in the Middle East. YNET News reports, Military sources say Israeli Navy sent warships to maritime border with Egypt following intelligence indicating viable terror threat. Meanwhile, Iran is set to send the 15th fleet to the Red Sea as well to convey message of peace and friendship to all countries. The story was headlining the Drudge Report and will most likely be widely read and this may give traders hesitation to go short especially if the tensions continue to rise into the weekend.

The weekly energy supply report from the American Petroleum Institute may also provide support due to a big drawdown in gasoline. While the API said that crude oil supplies rose to 352 million barrels and are about 3.8 percent above the 5-year average, gasoline inventories declined 3.11 million barrels to 210.8 million last week. If refiners have to shut down due do the multitude of storms, that could tighten supply ahead of the grand finale to the summer driving season, the Labor Day weekend. While demand was weak auto sales did rise and some may want to put gas in those band new cars.

As we said oil is looking strong and all the storms and geopolitical unrest will only add to the momentum!

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Phil Flynn
806 W. Washington Blvd.
Chicago, IL 60634
312 563-8344 / 800 935 6487

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