Hurricanes may leave oil prices flat-to-lower as storms avoid US Gulf

31 August 2010 19:38  [Source: ICIS news]

HOUSTON (ICIS)--The US hurricane season - normally a harbinger of higher crude oil prices - could prove a non-event or even result in lower energy prices this year as storms dampen demand, sources said on Tuesday.

Oil prices usually rise during hurricane season - 1 June through 31 November - amid worries that the storms could damage rigs and refineries in the Gulf of Mexico region. But so far in 2010, tropical storms and hurricanes are bypassing the Gulf and could instead disrupt demand along the Atlantic.

Hurricane Earl is expected bear down on the US east coast ahead of this weekend’s three-day holiday, while Tropical Storm Fiona is forecast to remain in the Atlantic well east of the US.

That has some energy analysts saying that the heart of the US oil and chemical industry could be spared, while consumers may bear the brunt of the bad weather.

“Earl currently is a category-four hurricane and is expected to graze the tip of North Carolina on Friday, just as vacationers are planning to arrive for the big three-day Labor Day holiday weekend,” PFG Best analyst Phil Flynn wrote in a research note. “Cancellations may become more prevalent as storm warnings all up and down the east coast may cause vacationers and beach lovers to stay closer to home.”

Crude oil prices were at about $72.00/bbl in mid-day trading on the NYMEX. That was up from a low of $70.06/bbl on 25 August, but down about 10% from $82.15/bbl on the first trading day of the month. Price sentiment was soft on weak economic data and high inventories.

Matt Smith, analyst with Summit Energy, said despite the recent flurry of storms developing, investors are more concerned about macroecnomic data related to the US economy trying to wrest its way toward higher growth.

“It’s not having any effect at the moment,” Smith said of the hurricane season. “Storms could close some of the refiners on the east coast. It’s not too much of a big deal.”

More pressing was a sense of risk aversion, Smith said, as investors were pessimistic about the US manufacturing data that the US Census Bureau is scheduled to release in coming days.

When Hurricane Ike - the last major storm to hit the Gulf region - struck in mid-September 2008, prompt US Gulf coast m-grade unleaded gasoline rose by $1.83/gal, to $4.6075-4.6100/gal, a premium of $2/gal over the October reformulated gasoline blendstock for oxygenate blending (RBOB) contract.

On 12 September 2008, a day before Ike made landfall, NYMEX crude hit a high of $102.89/bbl, a gain of $2.02/bbl from the previous day’s close of $100.87/bbl.

No such disruptions are yet expected this year, where most named storms have veered away from the Gulf coast. Even with Earl possibly making landfall on the Atlantic seaboard, it would most likely have little effect past the coastal areas, US Energy Information Administration (EIA) analyst John Duff said.

“The big cities are far enough inland that the hurricane won’t come to us,” Duff said. “It’s possible that if there are a lot of people cancelling their plans to go to the beach that could have an effect on holiday travel.”

Although Earl could have some influence on energy consumption, its market effect would be small compared to a storm tearing through the main production area in the Gulf, Duff added.

Crude oil production shut in by hurricanes during June and July averaged 70,000 bbl/day, according to EIA statistics. That was slightly higher than EIA's original forecast of 50,000 bbl/day for those two months.

($1 = €0.79)

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By: Ben Lefebvre
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