The Energy Report for Thursday, August 28, 2008

An eerie calm before the storm. Energy prices soar ahead of Gustav but at least with the oil one might wonder why traders are not more nervous.

Oh sure the market rallied but considering the track of the storm on the National Hurricane Center map and the somewhat supportive Department of Energy inventory report,  the gain seemed somewhat modest. Could it be that weak demand is trumping the fact that a category 3 or 4 storm could be hitting at the heart of the US refining industry? Is it possible  the market believes that the storm could be a bigger threat to demand than to supply? Now I know that a sound a bit crazy but that is exactly what happened after another Labor Day weekend storm like the devastating Hurricane Katrina.

As America watched with horror Hurricane Katrina devastated New Orleans and Mississippi it seemed that they were in no mood to take a vacation. Americans stayed home that weekend and watched with stunned disbelief the events that were unfolding. When the oil market reopened that Sunday night the electronic market surged to 7085 which turned out to be the high for the rest of that year. Oil then fell back to a low of 5990 in December.  Going into Katrina the nation had rapid demand growth that seemed to be grinded to a halt after the storm. Releases from the International Energy Agency as well as the US reserves helped to calm the market.  Not only that the US oil industry is better prepared to deal with this type of storm. Today's Wall Street Journal says, “While the threat to key energy infrastructure is real, the industry is more prepared this time around, suggesting it may take less time to recover from a minor hit or cope better with a more devastating one. The very active Atlantic storms of this decade have played a role in burnishing that learning curve, though much will depend on the severity of any blow to energy infrastructure.â€� The Journal goes on to say, “During the onslaught of Hurricanes Katrina and Rita, as well as 2004's Hurricane Ivan, rigs left their moorings, their loose anchors destroying pipelines. Now rig owners in the Gulf of Mexico have complied with federal regulations that mandate stronger anchors and upgraded mooring systems.â€� The WSJ quotes John Breed from Nobel Corp as saying “We've installed tracking devices on all our deep water rigs.â€� Which of course if you remember was a problem finding some wayward rigs after the storm.

Now with US demand faltering could a strike from Gustav make things even worse? Yesterday in the Energy Information Agency report “This Week in Petroleumâ€� the Agency made some interesting observations about the weak demand for gasoline. The IEA said that for the first time in 16 years the continuous growth gasoline consumption has ended in late 2007. The IEA says that should continue to decline at least through the end of 2009. The decline in consumption they say is the result of slowing economic growth combined with the rapid increase in retail gasoline prices. For the first 6 months of 2008, consumption declined by over 130,000 barrels per day, or 1.5 percent from that of the previous year.  And looking to the near-term future, growth in economic activity is projected to be slow. In 2008, real gross domestic product is projected to climb by only 1.7 percent and by an anemic 1.2 percent in 2009. This assumes no additional economic stimulus package -- enactment of such a package could improve chances for more robust economic growth next year.

Tune in to see me on the Fox Business Network today! Also sign up for your free trail of Alaronenergies! Just call me at 800-935-6487 or email me at  pflynn@alaron.com  to open your account.

The Trades will be more risky with Gustav out there churning. Now we may also have to worry about Tropical Storm 8. Think hard about carrying a position over the weekend. The risk will be high. I will be out tomorrow but make sure to call my team for the latest storm and trading updates. Also call for pre storm option plays. Also call for day trade numbers as well as potential profit objectives.

We're long October crude from apprx 11740 -  raise stop to 11790!

Buy October heating oil at 30600 -  stop 30300.

We're short  October RBOB  from apprx  29500 -  stop 30000.

 Long October Natural gas from apprx 800 Raise stopped apprx 850!!!!!

Buy October Natural Gas 780 stop 730.