Beauty. It's in the eye of the beholder.
For me, the natural beauty of Hurricane Lili --
viewed from the safe distance of a computer monitor or television screen -- is spellbinding.
Lili is also sure to be in the eye of the storm for pit players in multiple futures markets Thursday. After all, it's the second major hurricane to strike the Gulf of Mexico in as many weeks. As of 12:01 a.m. EDT Thursday, the eye of the storm was centered 180 miles south of New Orleans, traveling at about 16 knots on a northerly course.
The storm was upgraded Wednesday to a Category 4 hurricane, on a scale of 1 to 5, promising a 10- to 20-foot storm surge, winds between 130 miles and 155 miles per hour and extensive damage wherever it strikes.
National crude oil inventories are already at their lowest level in two decades, according to the Energy Information Administration's weekly report Wednesday, thanks in large measure to Hurricane Isidore, which swept through just last week. Lili appears destined to have the same supply-crushing effect. The Gulf of Mexico is responsible for one-quarter of U.S. oil and gas production.
Most oil rig and platform workers in the Gulf had already been evacuated due to Isidore. The Minerals Management Service, the federal agency that manages offshore leases of oil, gas and mineral rights, reported that 95% of crude oil and 60% of natural gas production had been shut down last week because of the evacuations. Most evacuated workers either did not return or have been re-airlifted to safety ahead of Lili. The resulting oil and natural gas production stoppages come at a time when energy markets are in pronounced uptrends.
Also disrupting supply, the largest oil-import terminal in the U.S., the Louisiana Offshore Oil Port, stopped receiving tankers Tuesday. Several ports along the Gulf Coast closed, and ships sought shelter in calmer waters outside the region.
The Heat Is On
The threat of an attack on Iraq has provided an underbelly of support for energies, but distillates are likely to get the most additional boost due to the storms' supply disruptions. This is partly because, as we approach winter,
(HOX2:NYMEX) could see its traditional, seasonal price hike in anticipation of cold weather.
Heating oil has also consolidated at its highs over the past eight sessions, setting up a
low volatility situation and, therefore, increasing odds that the market will make a larger-than-normal move as volatility reverts to its mean. Support for potential entry on an intraday pullback resides at 0.8120 and 0.8060. Alternately, a thrust and hold above 0.8210 could provide a classic breakout opportunity.
mentioned Tuesday, crude oil had already triggered out of a pullback from a high setup. If you were stopped out by Wednesday's first-hour plunge, a move above 31.20 serves as the pivot for a more psychologically difficult second entry.
(NGX2:NYMEX) is a potential breakout or second-entry play above the one-year high. But here the fundamental picture is different because supplies are hovering about 11% above the five-year moving average. Any rally or spike this week could meet with selling next week, if traders find that the Gulf's natural gas production and distribution infrastructure escaped damage. Also, natural gas demand actually drops during tropical storms as rains bring cooler temperatures, utility plants close and users and businesses within the storm's trajectory turn gas spigots off.
Two of the primary cash crops in Louisiana -- cotton and sugar -- are likely to be damaged by Lili's heavy winds and rains, just as plants mature for harvest. Fields are already soaked because of Isidore, many swimming after receiving up to 18 inches of rain.
(CTZ2:NYBOT) has rallied for the past five sessions to a one-month high, defining the fiber as a momentum market. Still, trend-line, Fibonacci and symmetry resistance come in beginning approximately one-half cent above Wednesday's close around 46.50, extending to 46.90.
(SBH3:NYBOT) ended impressively Wednesday, finishing above every close in its recent, three-week range and at a 10-month high in price action, suggesting momentum has resumed. Sugar also triggered a pullback from a high setup by closing above the high of the low bar in the pullback.
Marc Dupee is an independent trader and co-author of the book
The Best: Conversations With Top Traders. Dupee was formerly markets analyst and futures editor for TradingMarkets Financial Group. At time of publication, he held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback to
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