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Crude prices rebounded from the morning low of $93.36 to close over $102 the day after the biggest dollar loss ever in one day. To say it was a snap back rally would be an understatement. Crude futures have become obscenely volatile and many times with no reason for the move.

The rally in crude came as the broader markets rebounded +5% from Monday's sell off. Positive news was ignored as Mexico reopened one of its three export ports. Almost all of Mexico's 1.4 mbpd in exports depart these three ports. Bad weather had forced the closure over the prior two days.

The Minerals Management Service reported that 48% or 623,789 bpd of oil and 3.5 bcf (47%) of natural gas was still offline in the gulf. Workers remain evacuated from 111 or about 16% of the 694 staffed production platforms in the gulf. Workers have returned to all but one of the gulf's 116 drilling rigs. At last report 23 manned platforms were destroyed by the storm.

The fuel shortage in the southeast may not be corrected until late October according to the latest government reports. Severe shortages of fuel still exist and not all pipelines are running at full capacity. Several refineries are still at reduced capacity. Panic by consumers is making the recovery harder. Everyone is topping off and filling their tank whenever they see gas available and that is putting pressure on the distribution system. In normal driving more than 50% of cars contain less than half a tank for most of the week. Because of the shortage everyone is keeping their tanks full when gas is available and that means the supply system has to work overtime to catch up. Flying J is rationing diesel at many of its locations and warns on its website that fuel supplies are critical in Alabama, Texas, Virginia and the Carolinas.

Auto dealers said sales were dropping fast because of lack of financing. AutoNation, the country's largest chain of dealers said prime credit buyers were only being approved for loans 80% of the time and then only after being shopped to 4-5 banks. Less than prime approvals were less than 20%. The largest Chevrolet dealer, Georgia based Bill Heard Enterprises filed for chapter 11 bankruptcy. Credit Suisse said U.S. vehicle sales in September could be as low as 12.9 million (annualized) compared to 13.7 million in August and 16.2 million in September last year. Analysts project further cutbacks by automakers soon.

Wednesday's weekly inventory report has wide expectations from a drop of 2 million barrels to a gain of 3 million barrels. Analysts say the increased imports from tankers backed up by the storm could have offset the full production by operating refineries trying to compensate for the fuel shortage.

Jim Brown

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