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August 29, 2005
The New Conundrum, Mon., August 29, 2005, 5:06 AM
Capital markets are erupting early this morning. Hurricane Katrina is having a massive effect in more ways than weather. Energy markets have surged. Natural gas is up +19 pct this morning. Crude oil is over $70, as noted below. Bond markets have surged. The Euro vs the USD has surged. Asia Pacific equity markets overnight have fallen from 1 to 2 pct. Dow futures are down -37. Gold has moved up strongly by $2.
Katrina has turned out to be the perfect storm" in the sense that it will likely become a once in 500-year event for the City of New Orleans, as well as smashing the best laid plans of global money managers.
Katrina was, a couple hours ago, the third most powerful hurricane on record to hit the U.S., and now, with winds of 160+ mph, it is still going to be about the 8th biggest, according to AccuWeather.
Stay tuned. At 5:00am ET, Katrina is just 90 miles away. Latest storm track.
Latest NOAA Advisory.
AP: Oil Surges Past $70 a Barrel for First Time After Hurricane Forces U.S. Oil Facilities to Close
"Monday August 29, 3:40 am ET, By Gillian Wong, Associated Press Writer
SINGAPORE (AP) "
Crude oil futures surged past US$70 a barrel for the first time Monday as Hurricane Katrina barreled toward the heart of U.S. oil and refinery operations in the Gulf of Mexico, shutting down an estimated 1 million barrels of refining capacity.
Light, sweet crude for October delivery on the New York Mercantile Exchange jumped as much as US$4.67 a barrel in electronic after-hours trading in Singapore to hit a high of US$70.80 a barrel before slipping to US$70.01. That's up US$3.88 from its close on Friday in New York.
Gasoline traded at US$2.1491 a gallon, up 22 cents, while heating oil rose more than 17 cents to US$2.0097 a gallon.
Hurricane Katrina looked set to hit an area crucial to the U.S. energy infrastructure -- offshore oil and gas production, import terminals, pipeline networks and numerous refining operations in the southern states of Louisiana and Mississippi.
The Category 5 storm advanced on New Orleans with 160-mph (257-kmh) winds and a threat of a 28-foot (8.5-meter) storm surge, forcing a mandatory evacuation of the below-sea-level city. The last Category 5 storm which hit a densely populated area in America was Hurricane Andrew in 1992, which killed 43 people in Miami and caused US$31 billion (euro25 billion) in damage.
Katrina has already forced the shutdown of an estimated 1 million barrels of refining capacity and curbing offshore production, but analysts said the storm's potential damage to facilities was even more worrying.
"It's not only the suspension of production that's causing concern, it's the fact that we could see potential damage to the platforms, which would cause longer disruptions to production," said energy analyst Victor Shum of Texas-headquartered Purvin & Gertz in Singapore.
The Gulf of Mexico normally produces 1.5 million barrels of crude oil a day, or about a quarter of the United States' domestic output, according to the U.S. Mineral Management Service.
"It looks like the perfect storm to drive prices up," Shum said.
Katrina quickly grew from a smallish storm threatening Florida into a menacing hurricane in just a few days.
On Friday, the Nymex crude oil contract fell more than a dollar to US$66.13 a barrel as
many traders took profits on forecasts that Katrina would likely little affect U.S. refineries and production facilities in the Gulf of Mexico."
What is happening here is that massive capital is flowing out of the U.S. equity portfolios into bonds, energy contracts and into Europe.
The initial reaction is likely to take the broad U.S. equity market down a bit as the Bulls struggle to avoid a complete collapse. Then after the U.S. government comes to the rescue with multi-billions in financial aid, I expect the U.S. equity market to stage a huge come-back.
Posted by Posted by Bill Cara on August 29, 2005 05:07:39 AM | Category: Cara Today in the Market
Discourse
It is interesting to see the market action. I have been following the energy ETFs, Home Depot and Lowes as I believed there would be a lot of action on all three. At the open each was sharply higher then have tempered. Is that just because of profit taking as a temporary interruption to higher prices? Would the astute professional investor (you) have waited for the open, seen the settling action, then bought in because this action is typical in these kinds of situations?
Posted by: Mark at August 29, 2005 10:34 AM [link]
Here was the NWS forecast from earler Sunday. I do not know if this has been tempered by the decrease to Category 4 or not (but that was expected anyway):
DEVASTATING DAMAGE EXPECTED HURRICANE KATRINA A MOST POWERFUL HURRICANE WITH UNPRECEDENTED STRENGTH...RIVALING THE INTENSITY OF HURRICANE CAMILLE OF 1969.
MOST OF THE AREA WILL BE UNINHABITABLE FOR WEEKS...PERHAPS LONGER. AT LEAST ONE HALF OF WELL CONSTRUCTED HOMES WILL HAVE ROOF AND WALL FAILURE. ALL GABLED ROOFS WILL FAIL...LEAVING THOSE HOMES SEVERELY DAMAGED OR DESTROYED.
THE MAJORITY OF INDUSTRIAL BUILDINGS WILL BECOME NON FUNCTIONAL. PARTIAL TO COMPLETE WALL AND ROOF FAILURE IS EXPECTED. ALL WOOD FRAMED LOW RISING APARTMENT BUILDINGS WILL BE DESTROYED. CONCRETE BLOCK LOW RISE APARTMENTS WILL SUSTAIN MAJOR DAMAGE...INCLUDING SOME WALL AND ROOF FAILURE.
HIGH RISE OFFICE AND APARTMENT BUILDINGS WILL SWAY DANGEROUSLY...A FEW TO THE POINT OF TOTAL COLLAPSE. ALL WINDOWS WILL BLOW OUT.
AIRBORNE DEBRIS WILL BE WIDESPREAD...AND MAY INCLUDE HEAVY ITEMS SUCH AS HOUSEHOLD APPLIANCES AND EVEN LIGHT VEHICLES. SPORT UTILITY VEHICLES AND LIGHT TRUCKS WILL BE MOVED. THE BLOWN DEBRIS WILL CREATE ADDITIONAL DESTRUCTION. PERSONS...PETS...AND LIVESTOCK EXPOSED TO THE WINDS WILL FACE CERTAIN DEATH IF STRUCK.
POWER OUTAGES WILL LAST FOR WEEKS...AS MOST POWER POLES WILL BE DOWN AND TRANSFORMERS DESTROYED. WATER SHORTAGES WILL MAKE HUMAN SUFFERING INCREDIBLE BY MODERN STANDARDS.
THE VAST MAJORITY OF NATIVE TREES WILL BE SNAPPED OR UPROOTED. ONLY THE HEARTIEST WILL REMAIN STANDING...BUT BE TOTALLY DEFOLIATED. FEW CROPS WILL REMAIN. LIVESTOCK LEFT EXPOSED TO THE WINDS WILL BE KILLED.
AN INLAND HURRICANE WIND WARNING IS ISSUED WHEN SUSTAINED WINDS NEAR HURRICANE FORCE...OR FREQUENT GUSTS AT OR ABOVE HURRICANE FORCE...ARE CERTAIN WITHIN THE NEXT 12 TO 24 HOURS.
ONCE TROPICAL STORM AND HURRICANE FORCE WINDS ONSET...DO NOT VENTURE OUTSIDE!
LAZ038-040-050-056>070-282100-ASSUMPTION-LIVINGSTON-LOWER JEFFERSON-LOWER LAFOURCHE-LOWER PLAQUEMINES-LOWER ST. BERNARD-LOWER TERREBONNE-ORLEANS-ST. CHARLES-ST. JAMES-ST. JOHN THE BAPTIST-ST. TAMMANY-TANGIPAHOA-UPPER JEFFERSON-UPPER LAFOURCHE-UPPER PLAQUEMINES-UPPER ST. BERNARD-UPPER TERREBONNE-
1011 AM CDT SUN AUG 28 2005
Posted by: Mark at August 29, 2005 7:21 AM [link]