Hurricane Could Jolt Oil Markets

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"This year's hurricane season could make traders jump."

The Wall Street Journal, Ryan Dezember

With oil markets still jittery in the wake of the Arab Spring, this year's hurricane season could make traders jump if a big storm mows through the Gulf of Mexico's drilling platforms. But tempests are unlikely to make natural-gas traders lose any sleep, thanks to the U.S. shale boom.

"Crude and refined-product markets are going to be more sensitive to storms than natural gas," says Jason Schenker, president of Prestige Economics in Austin, Texas. While the U.S. is awash in natural gas, "there is still genuine concern about supply meeting demand" for oil.

The Atlantic Hurricane season started Wednesday and lasts through November. The U.S. National Oceanic and Atmospheric Administration predicts above-average activity for this hurricane season with 12 to 18 named storms, six to 10 of which are expected to be hurricanes.

NOAA didn't predict how many storms would make landfall nor how many might enter the Gulf of Mexico and disrupt oil and gas production. Last year also saw an above-average hurricane season, but no significant damage to the Gulf Coast's energy infrastructure took place.

The most recent major disruptions came in 2008 when Hurricanes Ike and Gustav blasted U.S. offshore oil fields, slashing production by about one million barrels of oil per day and by four billion cubic feet of natural gas. Those storms' effect on prices was muted by the recession. But in 2005, the year Hurricanes Katrina and Rita caused similar declines in production, natural-gas prices raced higher and oil prices surged.

Today, supply and demand dynamics have significantly changed.

In earlier years a storm-related shutdown would have a "logarithmic" impact on natural-gas prices, says Brian Habacivch, with energy consultancy Fellon-McCord. "But now you're operating under a surplus and abundance, so that has really pulled the plug on hurricane-season fears," he says.

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