Crude Oil Still Steady With Eyes On Tropical Storm Isaac

Crude oil remains steady with an upside bias on Tuesday morning as eyes remain on Tropical Storm Isaac. Crude oil is recovering from the drop seen yesterday as the storm might miss major oil fields yet remains a lingering threat to the Gulf as it gains momentum and turn into Category 2 Hurricane

The WTI crude oil futures opened today’s session at $95.73 and reached a high of $96.15 and a low of $95.12, where it is currently trading around $96.00 a barrel.

Speculations that the effect from the Tropical Storm Isaac will ease on the Gulf of Mexico’s oil output remains mixed, which is keeping crude very volatile ahead of expected landfall Tuesday evening. The National Hurricane Center said that Isaac was near hurricane intensity as it headed for landfall on the Gulf coast. The expectations are for Isaac to miss major oil fields has limited some of the upside momentum for oil, yet remains upside pressure with production cut from oil refineries in the region.

The center said at its 2 AM advisory in Miami that Isaac’s center strength was about 190 miles southeast of the mouth of the Mississippi River with top winds of 70 miles per hour but its 4 mph is less than hurricane intensity. However, Isaac is moving northwest at 10 mph and is forecast to strengthen before approaching southeastern Louisiana and Mississippi today.

Eyes are closely watching the developments of Isaac and will remain pressure on crude until it makes landfall and confirm the damage, where the upside effect will not be offset until the storm is confirmed over and away from the rich Gulf oil refinery region.

The fears of Isaac are offsetting the downside pressure from downbeat reports from Asia this morning. Japan cut its forecasts for the economy citing the global slowdown will affect its exports (the main part of the economy). Also, Japan said that deceleration in the United States and China, on top of Europe's debt crisis, pressured the downgrade, while further global slowdown and sharp market swings posed risks to the economy.

In fact, Japan’s fears of modest global growth and deepening debt crisis in Europe are rational as the situation in Europe is unenviable and investors are worried over the region’s outlook and how policy makers will solve the current crisis. Hopes and speculations that policymakers in Europe will announce appropriate measures to contain the crisis and following a regional road map out of the crisis are dimmed once again, especially as investors start to scale back the ECB’s expected action next week until the ESM is finalized in September.

In general, crude oil will be more biased to the downside if the impact of Isaac diminishes as it is gradually moving away from the U.S. oil output region. Nevertheless, with the storm still developing the risk remains evident and keeping prices biased higher until this evening but we warn again that confirmation of restricted damage will trigger a massive selloff for oil unless unexpectedly Isaac changes course again back to oil rich regions then bulls will surely take crude higher!