Sunday, August 31, 2008

Will Gustav rain on your parade?

Some news headlines are asking the question: will Gustav rain on the GOP parade? Short answer - of course it will. The question is to what extent it will rain on your and my parade. Make no mistake - a storm of this magnitude, ploughing through 20% of the oil production capacity of the world's largest energy consumer (the USA feeds on about a quarter of the world's energy) means there's a good chance it will affect you in the suburbs whereveryou are in the world.

How will it affect you? Well, imagine there are 12 children at a birthday party and a cake, enough for all 12 kids, cut into 12 portions. But now you take away 1, maybe 2 portions of cake. What happens at the party? What do the children do? They start to bicker because there's not enough to go around. Do you think the kid who ends up with nothing accepts that with grace? Do you think the 10 kids who could conceivably each get a piece calmly wait their turn?

This is a scarcy prospect, because farflung countries like Australia and South Africa might have to go without energy for a while. That has implications and consequences. How will your suburb cope with energy supply cut off for an unpredictable period. How will you cope if you can't bicycle to work? Because the bottom line is that gas stations will run dry for a while, no one knows where, or for how long, and obviously with prices now at $120, they could go anywhere with a major supply shutdown.

It should also be borne in mind that Katrina pushed oil prices up and curtailed supply at a time when oil prices were sniffing way south of $100, in the good ol' days of 2005. Now we're at 2008 levels, $120 and economists, bankersand politticians are praying that the likes of Hurricane Gustav simply don't materialise.

You know you are in a really tight spot when you're gambling that the weather - with all the environmentaldamage we cause - plays ball. The odds are, these systems aregoing to get worse. It's the sort of situation where the only positive thing you can say (if we insist on being positive) is "Well, at least you have your health."
clipped from
Tropical Storm Gustav above Haiti and the Dominican Republic

The US has only twice tapped its emergency reserve to respond to disruptions or supply shortage concerns. The most recent saw about 700 million barrels released after Hurricane Katrina.

This prospect was "taking some of the steam out of this (price)rally," said Jim Ritterbusch, of energy consultancy Ritterbusch and Associates.

With 85% of US offshore oil and gas production at risk of being affected, analysts predict that oil prices will rise further until Gustav has run its course.

Oil markets are waiting for Gustav

PetroMatrix analyst Olivier Jakob

"It looks as though the hurricane is on track to inflicting damage," said Ken Hasegawa, an analyst at broker Newedge in Tokyo.

Fellow oil analyst, Peter McGuire of Commodities Warrants Australia, predicted that the impact of Gustav could lead to oil prices returning above $130 a barrel, a price last seen in July.

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