Can the government do enough to avert a potential energy crisis?
The US Energy Department announced plans to
release crude oil from the Strategic Petroleum Reserve to keep refiners supplied
in the wake of hurricane Katrina. The amount to be
released and the refiners involved were not disclosed but the news did lead to a
pullback in crude oil prices today.
91.45% of Crude Oil daily production and 83.46% of Natural Gas
daily production in the Gulf of Mexico remains closed. 482 Platforms have been
evacuated and 79 rigs have been evacuated, reported the US Minerals Management
Service (Latest Update).
Hundreds of flights were cancelled due to airlines running low on jet fuel, as
the far reaching affects hit other industries (click
here for the full story). The total shortage of US jet fuel currently stands
at 13% and is leading to concerns the already struggling airline industry will
suffer even greater financial losses. Delta Airlines
(
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PowerRating) alone
cancelled over 300 flights.
The weekly EIA Petroleum Status Report release only heightened
concerns surrounding tight energy supplies revealing that Crude Oil inventories
declined by 1.5 million barrels and gasoline inventories declined by 500,000
barrels (EIA
Report).
October Crude Oil -1.25%, Heating Oil -0.41% and
Natural Gas -1.79% closed lower. Harbor Unleaded Gas +2.65% was
the only major energy contract to close higher.
US treasuries rallied following the release of
ISM Chicago report showed
the Business Barometer Index fell to 49.6, well below analyst expectations of
61.0 (a number below 50 represents contraction) and ended a run of 27 months of
expansion. The Government also released Q2 GDP data (Full
Report) that the economy grew at a slower pace than forecast, 3.3% vs.
expectations of 3.5%. The data was another boost to treasury prices.
MBA Purchase Applications were also released today.
December 10yr T-Note +0.44%, 5yr T-Note +0.43%
and 2yr T-Note +0.21% all closed higher but the largest relative gains
were at the short end of the curve, increasing the likelihood of an inverted
yield curve. The yield on the 10yr is now only 53 basis points above the Fed’s
target rate, the narrowest margin since 2001, while the yield on the 5yr is only
37 basis points above the Fed’s target rate, approximately half what it was when
the Fed began raising rates in June 2004.
With up to 80% of New Orleans underwater fears continued to
rise about the damage done to Coffee stored in warehouses in the area, 27% of
all US coffee supplies are stored in New Orleans. December Coffee +2.90%
closed higher. November Lumber +3.63% closed limit up for the second day
out of three. October Sugar -0.49%, December Cocoa -0.14% and
Cotton -1.05% closed lower among the softs.
All the major grains closed lower, Soybeans -1.92%, Wheat -1.32% and Corn -0.92%.
Economic News
MBA Purchase Applications:
Purchase Index – Actual 470.6
Corporate Profits:
After-Tax Profits, Y/Y Change – 33.2%
Gross Domestic Product:
Real GDP, Q/Q Change – Actual 3.3% Consensus 3.5%
GDP Deflator, Q/Q Change – Actual 2.5% Consensus 2.4%
ISM
Chicago:
Business Barometer Index – Actual 49.6 Consensus 61.0
EIA Petroleum Status Report:
Crude Oil Inventories, W/W Change – Actual -1.5 M Barrels
Gasoline Inventories, W/W Change – Actual -500,000 Barrels
Ashton Dorkins