Gustav continues to rumble toward the Gulf, but you wouldn't know it looking at energy prices Thursday. What’s going on when a potential hurricane can’t lift crude?
Oil prices fell more than $2 Thursday after the U.S. government pledged to release emergency stockpiles if Gustav disrupted U.S. oil production.
Nonetheless, oil traders can’t help but comment that it’s surprising when a hurricane can’t move the price of crude, at least somewhat higher. What’s going on?
“This storm is fairly priced into the market, explains Addison Armstrong director of market research at Tradition Energy. “And there are a lot of competing theories to how this thing is going to play out,” which adds to the uncertainty.
If you watch Fast Money regularly you might remember that Joe Terranova recommended sitting out the storm. "This is too fast of a trade for most investors,” he said. “No one other than a professional trader who’s sitting in front of a screen is fast enough for this trade.”
And that raises the obvious question. If damage is minimal, as it usually is, what happens to crude market, next?
“It looks like we’ve formed a bottomed right around $111,” says Addison Armstrong.
Terranova begs to differ. He thinks the market could well continue its march south. “We can very easily slip under the 100-day moving average which is right around $110 and technically the market could roll to $100.
However, if you want to play energy Terranova does have a trade. “If you have the view that oil will move higher long term on demand pick an oil service stock or integrated name such as Suncor or Petrobras. Otherwise stay on the sidelines for a while.