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Crude Oil: A “Gut-wrenching, Volatile, Fear-laden” Move Ahead
P.S. Hurricane activity means Hooey to Oil’s overall trend
A running joke among mainstream financial circles says -- If you want to know what the weather’s going to be like, ask an oil trader. Truth be told, the energy in-crowd spends more time watching changes in climate patterns than Al Gore. Their main goal: Spot “bullish” storm activity in oil producing regions that could damage supply and therefore, spark a rise in prices.
Case in point: At 8 a.m. on the morning of Tuesday, August 26, the U.S. National Hurricane Center issued an advisory for “all states lining the Gulf Coast” to “be on the look out for” hurricane Gustav. The oil connection came immediately. To wit:
“There’s a major change in [Gustav’s] track since yesterday… That’s what has [oil companies and energy traders] attention right now. If we get a major hurricane in the Gulf, there’s going to be a lot more short covering.” (Reuters)
News Flash: Since Hurricane Bertha kicked off the 2008 Atlantic Hurricane season on July 3 -- the Gulf region has already seen its fair share of “major” cyclone activity. Yet -- despite the supposed “Perfect Bullish Storm,” oil prices endured one of their steepest sell-offs in recent memory.
I repeat: the Gulf region is no stranger to storm activity, as this brief recap makes plain:
- On July 19, Bertha, Cristobal and Dotty were all active tropical weather systems, marking the first time that three named systems were in force on the same day since the practice of naming hurricanes began in 1950.
- On July 23, Hurricane Dotty made landfall near the Texas-Mexico border, leaving an estimated $1 billion of damage in its wake.
- On August 3, Tropical storm Edouard formed in the Gulf of Mexico
- On August 7, U.S. government forecasters raised their projections for an “above-normal” ’08 hurricane season from 65% to 85%.
- On August 24, tropical storm Fay set a record Fourth landfall, moving west across the Gulf Coast region.
- Thus far, the ’08 hurricane season has been responsible for SEVEN named tropical storms.
Not to mention the economic and political “storms” brewing in conjunction with the atmospheric ones: namely, the outbreak of war between Georgia and Russia -- the world’s biggest producer of crude oil -- on August 7, ongoing tensions between the U.S. and Iran, and the continued unraveling of the U.S. credit and housing market.
Still, amidst the raging winds of unrest and uncertainty, OIL prices took step one DOWN from its July 11 all-time high in a powerful 20% sell-off.
One day earlier, the July 10 Energy Specialty Service Daily forecast acknowledged the downside potential in the market’s near-term future and wrote:
“Two key topping indicators are still evident – extreme bullish sentiment and relentless media attention. Possible third and fourth signs – volatility and cries for more government regulation of commodity trading – are nearing their heads… It all points to a very mature uptrend.”
In addition to supplying the above insight, the July 10 Specialty Service commentary also presented the following chart of Crude prices since the year 1859 -- when the first commercial oil well was drilled in the United States. (Some labels have been erased for this publication)
This historical close-up provides the most comprehensive and objective evaluation of crude’s long-term trend out there. The picture can be seen in its entirety, along with a latest live Video Update of Oil narrated by EWI’s chief energy analyst Steve Craig in the August 26 Specialty Service Energy segment. In Steve’s own words: “I’m anticipating a volatile, gut wrenching, fear-laden” move in the coming weeks in Crude Oil.