Week Ahead: Trading Gustav

All eyes are on Gustav as it bears down on the Gulf of Mexico. And Tropical Storm Hannah appears to be close behind. Is there a trade, here?

"Unless you want to trade electronically on ICE and NYMEX over the weekend, I would be going home flat and waiting to see what happens,” counsels Tradition Energy director of market research Addison Armstrong.

“There is a long time between now and Tuesday morning, when the storm is projected to hit the Louisiana coast. If it were to veer south towards Mexico or east towards Florida, that would be very bearish for crude and the greater energy sector because the storm would then move clear of the primary producing and refining areas in the Gulf and along the coast.”

In fact, the storm to watch might not be Gustav at all. It could very well be Hannah!

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“If Tropical storm Hanna is a full-blown hurricane and is also forecast to enter the Gulf, then prices should move even higher,” explains Armstrong. That’s because Hanna in the Gulf will prevent rapid damage assessment and delay the start of repair activities.

"A one-two punch from Gustav and Hanna could cause extensive damage to the rigs and sub-sea pipelines that connect the wells in the Gulf to the mainland," Armstrong says.

In that scenario, repairs could take months and "you would want to be long oil field services companies, perhaps through the Oil Services HLDRS, Armstrong concludes.

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