Views on commodities and energy
On the second day of financial services turmoil, CNBC keeps a live update of the crude oil price on lower-right of the screen. An interesting choice for a sentiment indicator, particularly with the benchmark stock indices little changed.
Lehman Brothers, Merrill Lynch and American International Group all are clearing members on major commodity exchanges. All three had been active in getting clients to invest in the rally that made commodities the best performing asset class of the past few years, Barani Krishnan writes in an analysis on the apparent breakdown in relationships in asset classes.
(U.S. crude traded down $3.96 to $91.75 a barrel by 9:55 a.m. EDT in what’s seen as a move to cash. The Reuters-Jefferies CRB Index, a global commodities benchmark, neared eight-month lows on Monday.)
Some other stories we’re watching in commodities today:
Hurricane Ike did not appear to inflict heavy damage on oil refineries, FEMA told reporters. Nonetheless, several offshore platforms in the Gulf of Mexico — including BP’s big Mad Dog facility — were damaged. It’s a sign a full recovery of oil and natural gas production in the region could be a long way off.
Farm Foundation Forum on rural health insurance issues.
Expecting Mexico and Central American coffee exports data and Nicaragua coffee figures
Venezuelan Oil Minister Ramirez and Chile’s Mining Minister on a visit to sign exploration contracts
And the question for the day… What now for the pension funds and commodities diversification theory?
U.S. crude futures have just settled down 5.4 percent at $95.71 a barrel. Turmoil in the stock market plays a role but early signs Hurricane Ike spared key energy infrastructure also weighed on prices. In Texas, Chris Baltimore writes “widespread power outages were the key hindrance. Electricity is the lifeblood to Gulf coast refineries.”
Early indications are that the storm caused only minor to moderate damage to platforms and coastal refineries.
Oil prices are rising as Hurricane Ike moves within 24 hours of striking the coast near Houston with a possible 20-foot (6-meter) wall of water. A slew of oil refineries located in Galveston Bay that account for around 12 percent of U.S. capacity were also in the storm’s likely path. Weather forecasters at Planalytics saw “major and long-term damage likely at the major refining cities.”
Ike, the federal response and updates of output will set the tone for the day. Here’s a look at output shut in the Gulf and list of oil companies shut and some other events in commodities:
A surprise cut in production from OPEC and Hurricane’s Ike’s looming presence in the U.S. Gulf of Mexico are supporting oil prices above $100 a barrel. Just a daily move? Not to some. On OPEC, UBS told clients: ”We think this is a serious deal for a real cut… In this market, direction matters and this is a turn.”
It’s hard to grasp just what’s behind the volatility in oil prices lately, says Jim Landers of the Dallas News, taking on the Bubble Theory for the $40 a barrel drop in oil prices since July 11. (Pictured above: Havana before Ike hit)