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September 2nd, 2008

Gustav Passes, Oil Falls to Nearly $107

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Hurricane Gustav ran its course through the Gulf of Mexico and over the US coast doling out less damage than originally expected. By Friday evening, oil prices reached $115.46, and rose over a dollar on Sunday to $116.70, on fears the hurricane would damage offshore-drilling rigs. Reports that Gustav spared the Gulf of Mexico’s oil and natural gas rigs brought down the price of crude to just over $107 this morning. Oil prices haven’t reached these lows since mid-April.

The drop in oil prices was also spurred by a strengthening dollar:

Adding further pressure was the U.S. dollar, which climbed against most major currencies early Tuesday. Because crude is traded in the U.S. currency around the world, a stronger dollar puts downward pressure on oil prices. When the dollar gains, it costs foreign investors more to purchase the same amount of energy, explained Neal Dingmann, senior energy analyst at Dahlman Rose & Co.

Over the next few days energy companies will continue to asses the damage sustained to their offshore-drilling rigs. Despite sustaining less damage than predicted, Gustav, or any tropical storm of hurricane for that matter, can cause added consequence to an already weak economy:

But some economists believe that without any damage to the energy sector, the U.S. economy should be able to ride out any damage from Gustav.

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2 Responses to “Gustav Passes, Oil Falls to Nearly $107”

  1. Rebecca Wilder Says: September 2nd, 2008 at 1:59 pm

    What a relief to the Outlook that oil is nearing the $100/bbl mark! Shouldn’t everybody be bear oil? That is, except for oil exporting countries, and the oil and gas industry. It will release some of the strain on consumers’ pockets and free up some cash flow for goods other than gas.

    However, even though $100/bbl is low compared to July standards (>$145/bbl), it still sits at historic highs. Gas and energy prices will remain elevated, and the strain on firms and consumers will continue. Unless oil falls back to, let’s say, $70/bbl, gas and energy prices still present a risk to the Outlook.

    Rebecca

  2. Tim Manni Says: September 3rd, 2008 at 9:44 am

    Rebecca — Hurricane season is always a tough one for gas prices. I was shocked to see prices yesterday near $107! I remained concerned that consumers will rejoice over $100/bbl and resume previous spending habits. Consumers, in my mind, are one of the largest factors that are driving prices down. Reduced consumption is probably the only element of control we have left in this volatile market. As you said, if a blown up BP pipeline overseas doesn’t affect prices…what does?

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