Since the devastation of Hurricane Katrina and Hurricane Rita - North Atlantic Hurricane seasons have been mild in comparison. That was three years ago when the oil price was $50… what do you think production disruption will do to $135 oil?

This weekend saw the official start of the North Atlantic hurricane season… a vitally important factor to the oil price in the coming months.

And, as everyone knows, predicting the weather can be a losers’ game.

Back in 2005, Hurricane Rita had a disastrous effect on oil production in the Gulf of Mexico.

At one point just after the landfall of the storm, 93% of Gulf platforms were evacuated. As much as 1.5 million barrels per day (bpd) of crude oil (100% of normal output) and 8.8 billion cubic feet (bcf) per day of natural gas (88% of normal output) were shut in.

The cumulative impacts of Hurricanes Katrina and Rita were massive. The total disruption was estimated at 109 million barrels bbls of crude oil (about 20% of annual Gulf production) and 561 bcf of natural gas (15.3% of annual production).

According to the US Energy Information Administration, the US Gulf Coast is the source of about 40% of the gasoline produced in the US and the starting point for most major gasoline pipelines.

With supply constraints dominating the industry, a repeat of 2005 would send the oil price into the stratosphere. Indeed, if we have a repeat of the 2005 season this year, Goldman Sachs prediction of $200 oil may actually be met.

However, as I said earlier, predicting the weather is a losers’ game… and even the forecasters themselves appear to accept this.

Past performance is not a guide…

In fact, long-range hurricane forecasts are so unreliable that many forecaster issue disclaimers with their work, similar to the warnings you see on financial products.

Famous forecaster William Gray has always issued disclaimers with his forecasts. An expel goes like this: “[the forecast] can only predict about 50% of the total variability in Atlantic seasonal hurricane activity.”

North Carolina’s state forecaster Lian Xie added the following to his 2008 forecast - in bold: “Results presented herein are for scientific information exchange only… Users are at their own risk for using the forecasts in any decision making.”

The season has started bang on time this year. Already one named Tropical Storm has formed: Arthur. The storm weakened to a tropical depression on Sunday, after soaking the Yucatan Peninsula, but still threatened to cause dangerous flooding and mudslides in Mexico, Belize and Guatemala.

Last year the forecasters got it wrong. They were predicting a more-active-than-normal season which failed to materialise. This year, who knows, but it is of interest to see what these meteorologists are saying.

The forecast from the US government’s Climate Prediction Center says it’s likely that 2008 will be an active year for hurricanes in the Atlantic basin. It has indicated a 65% probability that we’ll see an above-average storm season… a 25% chance it will be average… and just a 10% chance that it will be below average. So, we are looking at 12 -16 named storms, with 6 - 9 hurricanes and 2 - 5 major hurricanes. (A major hurricane is a Category 3, 4 or 5 on the Saffir-Simpson Scale).

On average, there are 11 named storms, with 6 of them becoming hurricanes.

The experts are predicting an above-average season, but we should take that fact with a pinch of salt. What we need to remember is that every year between 1 June and 30 November a new risk factor moves into the oil market… it is impossible to predict and impossible to quantify… but it’s yet another bull fact for the oil price.

At Smart Commodities we’ve got two great oil plays specifically targeted to earn you profits in this bull market. More than that… it doesn’t matter if the oil price goes up or down… these plays are set to make you money either way.

Find out about these and all my other recommendations right now…

Regards,

Garry White
Editor
Smart Commodities UK

Source: Hurricane Season Hits USA, Prepare For The Resulting UK Petrol Panic Now