Crude Oil Trades Higher On Hurricane Fears

Crude oil futures traded $2.56 higher on Friday to close at $79.07 a barrel. There was no fundamental news to push the market higher other than fears of a possible hurricane forming in the Gulf of Mexico.

There is a tropical storm moving through the Caribbean and some projections have it moving into the Gulf. The warm waters of the Gulf are normally a breeding ground for hurricanes. It is a relatively small storm right now, but traders are fearful of being short going into the weekend. Nobody wants to wake up Monday morning and hear a hurricane is heading toward Louisiana, while they are short crude oil.

This is the first threat of a hurricane this season – albeit a mild one right now. This shows how much on edge traders are with the oil situation. Platforms would have to shutdown and the BP oil spill would escalate into a nightmare beyond comprehension if a major hurricane strikes in the wrong place. The odds unfortunately point to a storm hitting the Gulf this season, but we’ll keep our fingers crossed.

As a commodity trader, you have to think ahead about how these scenarios would affect commodity prices. Supplies are still ample for crude oil and demand probably won’t escalate anytime soon. However, a supply shock with a hurricane striking in the Gulf should send prices well above $80. There will probably be more efforts to curtail drilling in the Gulf if a hurricane derails containment efforts for the oil spill and scatters oil throughout an area that is impossible to contain and cleanup.