Gustav Update & Oil

We are live all day on Fox Business... and I'll update as I am able.

Oil is lower at 8 a.m. on this Monday, despite the storm (which is expected to hit in a few hours).   The reason is likely the dollar's recent strength.   Remember that the Gulf of Mexico produces about 1.3 million barrels a day of oil, or about 25% of U.S. oil production.   So the U.S. is producing around five million barrels a day.   That's a small percentage of global production of about 86 million barrels a day.   Since much of that 86 million barrels a day is priced in U.S. dollars, any move in the dollar (like we've had recently) will have an outsized impact on the price of oil, mitigating the shutdown from Gulf production.

A bigger concern is gasoline.   There are about 32 refineries in the Gulf region, including Texas.   We don't import that much gasoline, so if refineries go down we will have a stockpile of oil but a drawdown in gasoline as we consume but don't produce.   Watch the status of the refineries closely.   Also watch the Colonial Pipeline, which carries an average of 100 million gallons a day of gas, heating oil and aviation fuel to the South and Eastern U.S.

Map of the Louisiana area refineries and expected track of storm (courtesy of http://www.theoildrum.com/files/lbar_00z_01sep.jpg)

Much more to come all day on Fox Business .. and lets all keep the residents of that area in our thoughts first and foremost.