Energy Markets Back To Following Currencies and Equities

Now that Isaac has weakened – and Atlantic storms Leslie and Kirk are forecast to pose no threat to land – the energy market is back to following currency and equity markets. With the US Dollar index hitting a 3 month low and stock futures up nearly 1% in anticipation of Ben Bernanke’s speech today, crude oil is up more than a dollar and dragging refined products along for the ride. Charts continue to favor higher prices in the near term.

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Isaac Damage To Rigs and Refineries Minimal

Preliminary reports suggest that oil platforms and refineries in the path of Isaac have weathered the storm without major damage, and in some cases operations are expected to begin restarting before the weekend.

Equity markets are enjoying their last few days of summer vacation, with very little activity taking place. Yesterday’s FED “beige book” report showed that the US economy continues to grow at a very slow rate, which was supported by this morning’s personal consumption and income data, and leaves many doubting that Ben Bernanke is ready to announce another round of quantitative easing at this week’s meeting.

We are 2-3 weeks away from our typical seasonal peak in energy prices. Without clear direction from stocks, and technical studies starting to show weakness but still favoring the bulls slightly, I’d expect we drift higher ahead of the weekend.

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DOE Weekly Report

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No Reports of Major Damage To Oil Production And Refining So Far

Hurricane Isaac has made its landfall, and is currently stalling over Louisiana. So far, there are no reports of major damage to oil production and refining infrastructure in the area. It’s too early to breathe a sigh of relief however, as the system continues to dump rain and could still cause major flooding and power outages.

Energy prices are slipping, most notably Gulf Coast gasoline, which is now trading below levels from last week – before the storm took its left turn.

All eyes will continue to focus on the storm today, and if major damage is avoided, will quickly turn to Ben Bernanke’s speech in Wyoming tomorrow. Today’s DOE report may make small waves, but it won’t be until next week’s report that we see what impact the storm preparation had on supplies. Technicals for energy and equity markets are showing signs of having topped out, with $3 the first downside target for RBOB and HO prices.

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All Eyes Focus on Tropical Storm Isaac

All eyes continue to focus on Tropical Storm Isaac, which is scheduled to make landfall tonight or early tomorrow in SE Louisiana near New Orleans as a category 1 or 2 hurricane. Tomorrow is the 7th anniversary of Hurricane Katrina, which for some perspective was a category 5 hurricane at this stage in its life, and made landfall as a category 3 storm. Gulf Coast cash gasoline prices, after spiking 24 cents yesterday, have already dropped by 9 cents this morning, as traders bet that the impacts will be relatively short lived, and that the refineries shut ahead of the storm will be back running within a few days.

Meanwhile, the Chicago market doubled the increases seen along the gulf coast, after Buckeye pipeline suffered another leak along its badger line running from Chicago to Wisconsin, and was forced to shut the pipe. Repairs are expected to take another few days, and prices are expected to correct by the end of the week.

Once the storm passes, assuming catastrophe is avoided in NOLA, all eyes will shift to the FED meeting in Jackson Hole WY later this week. 2 years ago, this was the location when Ben Bernanke unofficially announced QE2. For markets eagerly anticipating version 3 of quantitative easing, hopes are running high that history will repeat.

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Gasoline Prices Soaring

Gasoline prices are soaring this morning, as Tropical Storm Isaac shifted west over the weekend and now has New Orleans – and a cluster of area refineries – in its sights. RBOB futures are up 11 cents, and Gulf Coast unleaded for the prompt Colonial pipeline cycle is up more than 27 cents so far. In addition to the storm threat, Venezuela’s largest refinery had a tragic explosion over the weekend, killing 41 people, and while the plant is expected to come back online shortly, this should keep a bid under the gulf coast for now.

While roughly 1/4th of gulf coast oil output has been shut in, and 1/5th of the country’s refining capacity could be impacted, markets are reacting as though this will be a relatively short term event. Current forecasts support this theory, with the storm intensity currently nowhere near the levels of Katrina/Rita in 2005 or Ike in 2008.

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Equities Drop Keeping A Lid On Energy Rally

Global equity markets are being dragged modestly lower by the Euro this morning, as some doubts have risen about the bailout plans now that leaders have returned from their summer vacations. Durable goods orders, excluding a large aircraft order from Boeing, dropped again last month and forward looking indicators show that purchasing will continue to slow down into the fall.

US Stocks have dropped over 2% this week, which is keeping a lid on the energy rally for the moment. Bullish technical studies, Mideast tensions and an active group of storms in the Atlantic should keep selling to a minimum for now.

TS Isaac is poised to make landfall in the US as a hurricane next week, with everything from New Orleans to Tampa bay under the forecast cone. Impact on gulf coast oil and refinery production is expected to be minimal – for now – but bears watching given the extremely warm waters in the US Gulf and unpredictable nature of this storm.

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Tac Energy Policy Regarding Hurricane Emergencies

TAC Energy, a division of Truman Arnold Companies, takes great care to ensure our regular customers are allocated the fuel supply they need to keep their business in operation during natural disasters. We make it a priority to secure supply and making deliveries to existing customers. TAC Energy will not abandon loyal customers by taking fuel in a limited supply environment and offer it to a prospective customer for short-term gain.

Product price volatility and extremely limited supply from natural disasters create a challenging environment for everyone who is in desperate need for fuel. Should supply disruptions occur due to hurricane Irene, TAC Energy will adhere to the following policies:

TAC ENERGY CONTRACT CUSTOMERS will receive top priority and supply allocation.

REGULAR TAC ENERGY CUSTOMERS will be allocated product immediately after contract customers.

PROSPECTIVE CUSTOMERS will be placed in a cue and given product allocation on a first come, first serve basis (if available).

In order to prepare for a natural disaster fuel emergency, we recommend the following:

- Build your inventory when a storm is forecast for your region

- Conserve your bulk inventory when possible – Fill your Vehicles, then your bulk tanks

- Do not rely on ANY published pricing indexes – call and confirm prices with your TAC Energy sales manager before ordering

- Prepare to be flexible with pricing formulas during the emergency period; due to market conditions beyond anyone’s control you may have to choose between price and supply.

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Should an emergency occur, all TAC Energy sales managers are on standby to provide you with 24/7 service. Our Supply & Logistics hotline will also be fully staffed to provide you with personal service.

TAC Energy Supply & Logistics Hotline         800-808-6500

National Accounts Manager

Carl Nelson (800) 375-3835 cnelson@tacenergy.com

Western Accounts Manager

Rob Case (303) 790-8096 rcase@tacenergy.com

Regional Sales Managers

Chad Hebert (972) 807-7873 chebert@tacenergy.com

Doug Jones (972) 807-7873 djones@tacenergy.com

Jeff Thomas (972) 807-7873 jthomas@tacenergy.com

Derrick Maynard (903) 794-3835 dmaynard@tacenergy.com

Energy Prices Continue Breakout Rally

Global markets are moving higher, following yesterday’s release of the FOMC minutes, which showed that most of the FED governors are ready to provide more monetary stimulus if economic conditions don’t improve in the near future. Meanwhile fundamental data continues to show weakness, with Chinese and Euro-zone manufacturing continuing to contract, and US jobless claims creeping higher yet again.

Energy prices continue their breakout rally, with simmering tensions over Syria and Iran adding to bullish technical and a falling dollar. There isn’t much on the charts to stop prices from spiking to their 2012 highs.

Tropical Storm Isaac continues its slow path through the Caribbean, and while forecasts for its strength and direction continue to conflict, it does appear that it will hit Florida early next week. While this will keep oil production and refining interests in the gulf coast from taking a direct hit, local supply disruptions will be an issue.

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DOE Weekly Report

CLICK HERE for a PDF of this week’s report