Milder Hurricane Season is Good News for Oil Markets

I’m not a weatherman and I don’t play one on television.

But as a veteran oil guy, I’m a big believer in the old adage, “safety first”.

Sixteen oil riggers died in a helicopter crash over the North Sea recently. The chopper went down in heavy seas and bad weather, and I don’t think the average American appreciates the bravery of oil riggers who literally put their life on the line to get consumers the oil and gas they need to run their lives.

It’s certainly not a priority of the news media, who can’t or won’t acknowledge the risks that oil riggers take when they go out on a job. Any sympathy from the New York Times or CNN would get in the way of their pre-fab agenda that oil is bad.

But I digress.

There is good news on the oil safety front, and we can thank Mother Nature for it. This after Professors Philip Klotzbach and William Gray of the Department of Atmospheric Science at Colorado State University have come out with a new study saying that this year’s hurricane season will be a mild one. The 2009 hurricane outlook calls for 12 “named” storms for 2009 – that’s down from 14 hurricanes in 2008. Of the 12 storms – the CSU study says only six will generate hurricanes, with two of them categorized as “intense” hurricanes.

Klotzbach and Gray know what they’re doing. Their track record for pegging the severity of bad weather during hurricane seasons has been spot on. In fact, their methodology has correctly predicted above- or below-average tropical storm seasons in 45 out of 58 hindcast years for a 78% accuracy rate.

A milder hurricane season is cause for celebration among oil drillers and by U.S. oil consumers. Think back to 2005’s hurricane season when hurricane Katrina ravaged not only the U.S. Gulf Coast, but also the oil rigs that dot the shoreline along the Gulf of Mexico. According to data released at the time by Cano Petroleum, the damage done by Katrina left the oil market’s reeling.  "Worldwide demand and supply for crude oil is now nearly even at 85 million barrels a day,” said Cano, “so the supply 'cushion' that we enjoyed in the past that kept prices low no longer exists. Refining capability to produce more gasoline is at full capacity because America has not built a new refinery since 1976. The U.S. already gets a quarter of its domestic oil production from offshore platforms in the Gulf of Mexico. Because Hurricane Katrina has shut down production there and the current refinery bottleneck, oil/gas prices are going to stay high for a long time."

For another viewpoint, consider how much of an impact a severe hurricane can have on a local economy. Using Katrina and the state of Louisiana as a metric, that impact is huge. According to the Louisiana Mid-Continent Oil and Gas Association, the impact of the oil and gas industry in Louisiana alone exceeds $70 billion. A 2007 study by the LMCOG says that the oil industry supports 320,000 direct and indirect jobs. The study also says that each oil and gas job supports 5.5 other jobs in the state. When broken down, the study shows that each oil and gas extraction job supports 3.9 other jobs in the state, while each refining sector jobs supports another 11.7 jobs. “When you begin to
examine the impact of the industry, you see just how far reaching it actually is and how it is connected to so many other economic sectors in the state,” the study reported.

Consequently, a softer hurricane season translates into a better economy, more oil for consumers, and, above all, a safer environment for those brave oil riggers I’ve been talking about.

That’s a win-win for everyone. Let’s hope Mother Nature co-operates.

Posted 04-15-2009 8:01 PM by Bret Boteler