Oil Prices Go Up Based on Hurricane Fears


After the almost relentless bullishness of the markets since the end of February, the last few days seem to have taken on a slightly different shape. Are we really entering bearish waters? Or is it just the typical nerves that one sees when the market does continue to record ever higher and higher highs?

Already in the United States they are starting to concern themselves with the start of the hurricane season, much as they did last year following the 2005 Hurricane Katrina devastation. It clearly shows that memories of the destruction to property and the disruption to oil supplies is of major concern to the financial markets.

Not only that, but there is concern that refineries will be unable to keep pace with demand even before the Gulf hurricane season kicks in. Hence crude oil prices remaining firmly above USD$60 per barrel. The Brent Crude contract has even pushed through the USD$70 a barrel mark this week.

Alex McGarr, commodity broker with Cannon Trading Inc, in California told Bloomberg News, “Traders just don’t believe that refiners can keep up with the demand that is out there. We’ve got enough crude but you can’t do anything with it if you can’t refine it.”

So far the consumer has been able to weather the storm of the resultant higher oil prices. As McGarr said, “So far, the consumer really hasn’t flinched.” There isn’t much doubt that consumers are getting used to paying over AUD$1 per litre. Currently it is being priced around the AUD$1.30 mark or even higher. When it first reached these levels there was an outcry, however, as it hits these high points yet again there is barely a murmur. No doubt that when the price of petrol hits AUD$1.70 or more it will be met with the usual nonsense of price gouging allegations, and calls for the ACCC to investigate. Soon enough the hullaballoo will peter out and the price will settle into a new range.

Kris Sayce
The Daily Reckoning Australia

Kris Sayce
Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Daily Reckoning e-newsletter in 2005. He is currently the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service — Money Morning.

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