Natural calamities appear once in a while and challenges both
personal & business health of people around. Hurricane Sandy is no
exception. My series of blogs are more focused on business. In this blog and in
the next few blog posts, I am going to point out what kind of business implications
does hurricane Sandy have on the commodity markets.
By the time different agencies of the United States started
to react to the calamity, commodity markets started to react as well. In this
blog, we are going to see how commodity traders reacted to the calamity. Crude
oil rose to about 4.2% after the Uncle Sam announced that he is expecting and
is terrified about the expected arrival of Hurricane Sandy.
Why? Markets expected that oil refineries, especially the
one in Bayway plant in Northern New Jersey, will be shut down temporarily and
so there will be a fall in supply of crude oil. The expected fall in supply of
crude oil led to price increase. We can see the surge clearly in Chart 1.
Chart 1: Surge of Crude oil commodity
If you ask me, will there be commodity traders who would
have made money out of hurricane Sandy, I bet. Someone’s loss is always someone’s
gain. Table 1 clearly shows that hurricane Sandy that it did offer a hell-of-an
investment opportunity to a lot of commodity traders. If someone has bought
crude oil worth $1 Million, he could have made as much as $42000 in a day. It is
tragic that the profit that these traders made is the loss born by consumers of
different forms of crude oil.
Table 1: Surge in
crude oil (In %)
|
In a 3-day period, Surge of Crude oil (in %)
|
4.20%
|
|
Surge (in %) on an annualized basis
|
14824.71%
|
In cases of these natural calamities, how do commodity
traders make money? All you need to know is how the supply chain is going to
get hit. Then, it is pretty simple economics. Buy the essential commodity as its price is
going to rise.
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