Oil Spikes over $4.35

Written By Luke Burgess

Posted September 19, 2005

Dear Wealth Daily reader:

Crude oil futures spiked to over $4.35 today from a six-week low of $62.65. Benchmark light, sweet crude for October delivery rose close to 7%, to $67.50 in afternoon NYMEX trading.

Today’s increase came after news that OPEC would be unable to meet global demand in the event of another hurricane disaster in the Gulf of Mexico even if the organization pumped at full capacity.

Ironically enough, Tropical Storm Rita, near the Bahamas, is forecasted to strengthen to a hurricane and head for the Gulf of Mexico.

OPEC members will meet in Vienna later today and may agree to temporarily suspend the quota system in order to offer customers every barrel of oil that members can produce. The cartel has 2 million dormant barrels of production capacity. Most of the spare capacity is in Saudi Arabia

The 2 million barrel increase is ripe with speculation. Most likely the cartel will agree to raise the daily quota by 500,000 barrels. An increase of 500,000 barrels would boost OPEC’s formal production quota to 28.5 million a day.

Oil prices more than doubled in the past two years. Crude futures reached a record $70.85 a barrel on Aug. 30 after Hurricane Katrina sank rigs and shut refineries along the Gulf of Mexico. U.S. gasoline prices at the pump this month reached a record $3 a gallon, on average, while consumers in France and the U.K. protested over rising fuel costs.

Oil ministers for the United Arab Emirates, Mohamed bin Dhaen al-Hamli, and Venezuela, Rafael Ramirez, said increasing the quota may not lead to lower gasoline prices because of bottlenecks in the refining system.

While OPEC ministers meet, many traders are eyeing the new storm that’s just southwest of the Florida tip.

Lovely Rita Meter Maid
Tropical Storm Rita, now 500 miles from Key West, is forecasted to strengthen to hurricane status during the next 24 hours and may become a Category One hurricane by late today.

While a Category One hurricane is much weaker than Katrina, the simple notion of another hurricane is just enough to have traders anxious.

Long-range forecasts show the system moving into the Gulf of Mexico late in the week, then approaching Mexico or Texas.

Tropical storm Rita is currently packing maximum wind speeds of nearly 60 miles an hour and has the potential to bring 8-foot storm surges.

Officials have already ordered residents to evacuate from the lower Florida Keys today as the system churned toward the island chain.

The hurricane season ends Nov. 30.

Wealth Daily will keep you updated on Rita.

A Case of the Mondays

On Wall Street today, stocks fell sharply as oil jumped over $66 and investors grew more concerned about the Federal Reserve’s upcoming meeting on interest rates.

Investors pulled the bridal today as they waited to see whether the Fed would continue its plan to raise the nation’s benchmark interest rate or halt the string of increases and curb fears of an economic downturn following Hurricane Katrina.

Although traders are uncertain about what the Fed’s decision is likely to be, many analysts are saying the central bank will continue lifting rates to stem inflation and will keep that as its main priority despite the widespread economic ripple left in Katrina’s wake.

The Fed’s policy announcement is expected Tuesday afternoon.

The Dow closed down 84 points, -0.80%. The NASDAQ was down 15 points, -0.69% while the S & P dropped 7 points, -0.55%.

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