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Hurricanes may further fuel crude

April 19, 2008 15:30 IST

William M Gray and Philip J Klotzbach, hurricane researchers at Colorado State University, have forecast a busy hurricane season this year. This may buoy the prices of crude and keep the flag of inflation flying high as the year progresses.

On April 9, the duo increased its count of expected storms to 15 from the 13 forecast in early December 2007. The researchers have also increased the number of expected hurricanes to eight, from seven, and intense hurricanes to four, from three.

They will further update their forecast on June 3. The official hurricane season in the US runs from June 1 to November 30 each year.

But why should crude prices get affected by hurricanes in the Atlantic?

Beginning May, as temperatures rise in the North Atlantic Ocean, tropical disturbances are formed. These travel westwards and some of them take the form of tropical depressions, which then graduate to tropical storms when they achieve a speed of 39 miles an hour.

They get hurricane status when they cross 74 miles an hour. Hurricanes with wind speeds of more than 111 miles an hour are termed "intense".

Not every tropical depression becomes a storm or a hurricane. But even those that do may not bring harm if they do not make a landfall. Some of them, however, end up in the Gulf of Mexico and make a landfall anywhere from Mexico to Florida. This is where it hurts.

Apart from the loss of lives and property that follows a hurricane landfall, oil facilities are also at risk. The Gulf of Mexico is home to about a third of the US's oil and gas producing facilities.

Some 4,000 mobile and fixed platforms dot the waters from Texas to Louisiana. When Hurricane Katrina struck in 2005, it put 85 per cent of the Gulf's capacity out of operation; about 15 per cent of the facilities were still un-operational when the season began in 2006.

Then, there is the Louisiana Offshore Oil Port (LOOP), a deepwater port in the Gulf of Mexico. LOOP provides tanker offloading and temporary storage services for crude oil transported on some of the largest tankers in the world.

Most tankers offloading at LOOP are too large for US inland ports. LOOP handles 13 per cent of the US's imported oil and connects by pipeline to 35 per cent of the US's refining capability.

Hurricanes that strike  the Louisiana coast could well put this out of order. Besides, the bad weather that precedes a hurricane may keep the tankers waiting for days without unloading.

So a hurricane in the Gulf means that not only a third of the US production does not reach the shore, but even the imported crude is shut off creating opportunities that may send crude prices soaring. 

The saving grace is that hurricane forecasting is still not a perfect science. In 2006, only 50 per cent of the expected hurricanes turned up and none made a landfall. In 2007, two category five hurricanes -- Dean and Felix -- made landfalls in the Atlantic basin for the first time ever. But they narrowly missed gas and oil rigs in the Gulf.

But hurricane watchers would like to keep their fingers crossed with memories of hurricanes Charley, Frances, Ivan and Jeanne, which caused devastating damage in 2004 followed by Dennis, Katrina, Rita and Wilma in 2005 fresh in mind. Dolly, Laura, Paloma, Sally and others could give inflation and crude watchers some unexpected jitters this season.

Vinod K Sharma in New Delhi
Source: