Commentary: After a steady decline in value over the past two months due to the renewed strength of the U.S. dollar, crude oil futures bounced back temporarily as of late. Hurricane related inventory depletion and the undermining of the U.S. dollar due to the ongoing financial crisis in that country caused a rush of commodity buying for a number of days underpinning the price of crude in the process. The specter of a failing U.S. economy, however, highlighted by the apparent failure of a proposed bi-partisan bail-out package helped fuel fears of a slower U.S. and global economy and its related depressed demand for petroleum and resulted in a dramatic fall in both financial and commodity market prices on Monday.

US $ Per Barrel CDN  Cents Per Litre CDN Cents Per Litre CDN Cents Per Litre   CRUDE RUL F/O DIESEL Sep 29/08       $96.37 122.3 98.3 126.0  Sep 29/07 $81.66 102.4 76.2 105.6 YOY Diff. $14.71 19.9 22.1 20.4 % Change +18% +19% +29% +19%   1.  DOE Report - September 24, 2008:

Weekly (bbl) Year over Year Crude -1,500,000 -9.4% Gasoline -5,900,000 -6.6% Distillates -4,200,000 -8.5% Refinery Yield: 66.7% Demand: down 3.5% Year over Year.

2. Residential Effects of Hurricane Ike:

While somewhat dated now, the DOE in its report dated September 24^th reported that as of the 23^rd more than 850,000 barrels per day of crude oil production from the Gulf of Mexico and about 1.7 million barrels per day of refinery capacity were still shut down. To date 27 million barrels of crude oil production from the Gulf of Mexico have been shut in due to Hurricanes Gustav and Ike. As of September 19^th, approximately 46 million barrels of refined product have not been produced due to refineries being either shut down or running at reduced levels for lack of crude oil as a result of port closures and pipeline outages. While the Hurricanes together did not inflict the damage witnessed when Katrina came ashore, the interruption to crude production and refining capacity has nonetheless been significant and is now beginning to show up in domestic inventory levels. Indeed gasoline inventories have declined to record low levels and are now at their lowest level since 1967. Distillate inventories, while in better shape, are low as well. The slow but steady return of crude production and the re-starting of Gulf refineries will eventually address this situation but any unforeseen event which would result in further interruptions or a sudden increase in demand could result in at least temporary price spiking. Having said same, given continued reduced demand and in light of the ongoing financial struggles currently being experienced in the U.S., all things being equal gasoline prices should continue to moderate in the immediate future. 

Note: