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Sandy: Crude Futures Decline, Natural Gas Rises

October 29, 2012

Worries of a potentially devastating Hurricane Sandy have already resulted in far-reaching for the financial world; the U.S. markets closed on Monday and European stocks have also dropped in anticipation of the storm. Expectations of the storm have affected the commodities markets as well. Crude oil for December delivery (CLZ2) has seen a moderate decline thus far. It ended trading on Friday at $86.28 and is down $1.06 (1.23%) on the day. It is important to keep in mind that crude oil futures decreased sharply last week – crude oil December delivery was $89.15 at Monday’s open.

The hurricane will likely increase the demand for crude oil. This may have less of an impact than it normally would under other circumstances because this past Wednesday, the Energy Information Administration (E.I.A.) reported that crude oil supplies (excluding SPR) increased 5.9 million barrels to 375.1 million, up from the one-year historical figure (337.6 million barrels). It’s possible that this excess supply will minimize to some degree the impact of the increased demand. Hurricane Sandy has not yet provided a large effect on crude oil. However, there is a substantial risk that supplies could be cut off, depending how bad the storm is. If refineries were shut down, gasoline, heating oil, and crude oil would all likely be affected.

Natural gas futures have also been affected by the anticipation of Hurricane Sandy. On Monday, delivery for November (NGX2) increased significantly by $0.09 (2.53%) to $3.49. Increased storage numbers may also offset the rising demand from the expectations of the storm. The E.I.A.’s weekly natural gas storage report last Thursday indicated a 67 billion cubic feet (Bcf) increase in stocks of natural gas for the week ending on 10/19, and the total storage, 3,843 Bcf, was 153 Bcf (4.1 percent) above the year-ago level. Like with crude oil, this supply data may minimize the impact Hurricane Sandy will have on natural gas futures, though it has already seen the significant price increase mentioned above.