Early start for hurricane season

The 2012 tropical storm and hurricane season officially began June 1 and extends to Nov. 30, but it got off to an early start when Tropical Storm Alberto formed off the South Carolina coast and quickly weakened into a tropical depression in late May. At presstime last week, another possible tropical storm was brewing off the east coast of Florida.

Earth Networks predicts a “near-normal” hurricane season this year for the Atlantic Basin, which includes the Caribbean and the Gulf of Mexico. It forecasts 11-13 named storms compared with a 30-year average of 12. Of these, 6-7 could become hurricanes including 2-4 major hurricanes with winds in excess of 111 mph. The long-term average is 6 hurricanes including 3 major blows. Earth Networks said US landfall will be near normal.

The National Oceanic and Atmospheric Administration also expects a near-normal season, with 9-15 named storms and 4-8 hurricanes, of which 1-3 should be major. However, the Colorado State University forecast team earlier predicted a below-normal season with 10 named tropical storms, 4 hurricanes, and 2 major hurricanes.

Weather predictions are a crap shoot, of course, with no guarantees. Last year was supposed to be a more-active-than-usual storm season. It did produce more tropical storms than usual and a near-normal number of major hurricanes. But Irene was the only hurricane to make US landfall last year, coming ashore in New Jersey—the first to hit that state since 1903. Irene was one of the 10 most destructive and deadly hurricanes to hit the US, but the 2011 hurricane season produced virtually no damage to the Gulf Coast or offshore operations.

The 2005 season was the worst in recent memory, brewing 15 hurricanes including 7 of Category 3 or higher. Category 5 Hurricanes Katrina and Rita hit the US Gulf Coast in rapid succession late in the season, destroying 115 offshore installations in the gulf and shutting in 95% of gulf oil production and almost 30% of refining capacity.

That prompted alarmist claims that hurricanes were becoming stronger and more frequent because of global warming. As recently as March, one study forecast future hurricanes will be stronger because of global warming, although the number should not increase and may even decline. There have been damaging storms in recent years, including Hurricanes Gustav that hit Louisiana and Ike that hit Galveston, Tex., in 2008. However, there is no convincing evidence of an era of super-storms that alarmists predicted.

If a hurricane hits the US Gulf Coast this year, Olivier Jakob at Petromatrix in Zug, Switzerland, said, “One thing that we can be sure is that the US government will not hesitate one second in calling for a Strategic Petroleum Reserve release.” Many industry and political analysts say President Barack Obama is almost certain to tap the SPR to push oil prices lower prior to the November presidential election.

However, Jakob said, “It is also interesting to note that even the Republicans are starting to support the release of the SPR in case of supply disruptions due to the sanctions against Iran. We are starting to think that policymakers are waiting for the official start of the European sanctions on July 1 to trigger the SPR bullet, as legally it would become a formal event only on that date.”

Euro-zone factor

Barclays Capital Commodities Research analysts report rising economic uncertainty in Europe and lack of government policy response are affecting all risk assets. Stock markets have faltered, peripheral spreads relative to bunds have widened, and the euro has fallen sharply relative to the dollar. A “sequence of downbeat European debt headlines, particularly concerning Greece,” over an extended period has forced the oil market to adapt to “darker conditions,” they said.

“However, neither the macro environment nor the oil demand data itself are actually that apocalyptic,” they said. “Economic data from the US have been largely robust, while not all of the European figures have been dire.” Oil demand seems to be growing. With the exception of China, they said, global oil demand growth has been better than expected. They noted time spreads and physical differentials have held up despite the recent sell-off in flat price.

Still, they said, “Continuation of economic gloom and an over-concentration on European economic prospects are likely to create significant headwinds for prices in the coming months, much like last year when concerns about the health of the US economy were rife.”

(Online May 28, 2012; author's e-mail: samf@ogjonline.com)

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