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Fay, Gustav and Hanna

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Hurricane Fay, now downgraded to less than a tropical storm continues to dump massive amounts of rain over Mississippi and Louisiana. She is no longer a threat to the oil patch in the gulf. However, before Fay has even left the NHC storm map tropical storm Gustav is barreling down hurricane alley and headed for the gulf. Hot on his heels is soon to be named storm Hanna. After three years of relatively little in the way of gulf storms it appears we could see a one-two punch next week.

Tropical storm Gustav already has sustained winds of 70 mph and it on a direct track to run right across the oil patch starting next Sunday. The oil installations in the gulf are already making preparations to shut down production and evacuate the rigs. Having two storms so close with Hanna likely to be named by Wednesday this could be a prolonged shutdown. If anything is damaged by Gustav the addition of Hanna only 4-5 days later is only going to aggravate that damage.

The price of oil rallied to $115.60 as Gustav showed up on trader's worry list. Traders are still reluctant to become too bullish until after the Wednesday oil inventory report and with the storm not due in the oil patch until Sunday they can afford to wait until after the report. Remember, last week there was a monster build in inventories as a result of the lag time for deliveries due to hurricane Eduardo clogging up the gulf shipping lanes. We should see numbers return to normal in this week's report but traders are not going to place any big bets on Gustav until after the report is released.

These storms will hurt production from Mexico if they veer slightly westward as they pass Cuba. Mexico is already suffering from falling production without any outages due to storms. We heard on Saturday that production from Mexico's Cantarell field fell -36% over the past year reducing the country's overall oil production and creating a sharp decline in exports. The director of PeMex said new fields were not coming on fast enough to offset the rate of decline in Cantarell. Welcome to peak oil! Mexico's production for the first half of 2008 is already -10% below 2007 and still dropping. Cantarell is only producing at a rate of 1.12 mbpd and that is -472,000 bpd less than the same period in 2007. Exports from Mexico currently average 1.44 mbpd or -16.3% less than in 2007.   

The high price of fuel has prompted a sharp increase in smuggling of diesel fuel from Mexico to the US. One source said a ring of smugglers in Juarez was moving 35,000 gallons of PeMex fuel into the U.S. every week. Diesel costs half as much in Mexico. Over 4,000 trucks cross the Juarez-El Paso border daily offering plenty of opportunities for moving diesel. Trucks with modified oversized fuel tanks are topped off before making the crossing only to dump the unneeded fuel in various locations once across the border. This is safer than drugs because being caught with extra diesel only requires you pay the duty on the fuel. El Paso agents report an upsurge of civilian vehicles with hidden fuel tanks full of diesel as individuals attempt to capitalize on the difference in prices.

I would like to invite everyone to attend the 2008 Peak Oil Conference with me on Sept 21-23 in Sacramento. Many Option Investor subscribers and myself will be attending and it will definitely be fun and entertaining. I have been to two of these ASPO conferences and it is the only conference I would not miss for the world. This is the definitive answer to all your peak oil questions.

All the Option Investor attendees will sit together so we can talk about the presentations during the breaks. I will be holding an evening session just for OI attendees and it will be Q&A and a general discussion about what we heard that day and how to profit from it. I strongly suggest anyone concerned about their future not miss this opportunity.

Go here to register: http://www.aspo-usa.org/aspousa4/

On the third page of the registration put my name in the "How did you hear" box. That way I can track the registrations and send you emails about meeting times and places.  I guarantee you will not be disappointed with what you learn. You will profit from the experience through your investments and avoid many of the coming pitfalls.

Jim Brown

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