1. Waiting on the Congress

For a second week, the oil market moved in step with the equity markets as the Congress continued to debate and vote on a financial bailout. On Monday oil fell by a record $10 a barrel on news that the US House of Representatives had rejected the first bailout bill. On Tuesday oil fell below $95 and then climbed to $102 on renewed hopes that Congress would pass another version of the bailout later in the week. On Wednesday, however, oil fell when the weekly stocks report showed that US oil and particularly gasoline consumption continues to decline. With little news from Congress, oil reacted significantly to fundamentals for the first time in two weeks.

Crude and gasoline stocks increased last week as ships that were delayed by the hurricanes were able to unload their cargoes. Nearly all the refineries shutdown by the hurricanes are back in operation, although nearly 60 percent of Gulf oil production remains shut-in. US Gasoline prices continue to fall.

Last night the US Senate, most of which is not up for reelection, passed its version of a financial bailout bill in hopes of encouraging a similar vote by the House on Friday . As the US economy continues to deteriorate, with car sales and industrial production registering further declines, many are starting to wonder if simply unfreezing credit will be enough to reverse the oncoming recession and increase the demand for oil. Some Wall Street analysts are already starting to talk about $50 oil if the world economic situation gets bad enough.

2. Shortages

Although the flow of oil to southeastern states is improving, spot shortages are expected to last for at least two more weeks. Despite a small increase in US gasoline inventories last week, the overall stockpile is still well below the normal range. US gasoline imports last week were several hundred thousand b/d higher than normal.

Recriminations are starting to arise over lack of action on the part of state governments that failed to use emergency powers to mitigate the gas shortages. Many governors have the authority to impose odd and even refueling days to reduce the lines at gas stations and to impose maximum and in some cases minimum gasoline sales to discourage topping off tanks.

Distillate stocks continued to decline last week and are at the bottom of the normal range. Unlike gasoline, there is little diesel available for import so it looks as if we will be going into the winter heating season with little cushion. Hurricane forecasters are saying that conditions are still right for an unusually active October.