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A direct hurricane hit could push oil to $150

Meteorologists are predicting a busy hurricane season, and any direct hit on the Gulf of Mexico's oil and gas infrastructure could easily send oil prices soaring past $150 a barrel.
/ Source: The Associated Press

Meteorologists are predicting a busy hurricane season this year, and any direct hit on the Gulf of Mexico's extensive oil and gas infrastructure could easily send already sky-high oil prices rocketing past $150 a barrel.

But predicting whether, much less where a big storm will strike, is tricky business. Energy markets haven't priced in a potential catastrophe, and won't factor in a hurricane until a storm actually forms.

The 2005 hurricane season was one of the most destructive in history. It sent oil prices soaring into the then-unfathomable $60s. Natural gas futures rose above $14 per 1,000 cubic feet, prices that haven't been seen since.

But oil trades at double that amount today, and a turbulent summer in the Gulf could easily send prices well beyond the record $135 per barrel it reached last week.

"If we get anything that disrupts Gulf production in a meaningful way ... I think it could easily push prices to the $150 level," said Brad Samples, an analyst at Summit Energy Services Inc. in Louisville, Ky.

The Gulf is home to hundreds of oil and gas drilling platforms and pipelines which are typically shut down when a storm approaches. Hurricanes can damage platforms or scatter pipelines, and that can take months to repair.

Storms also disrupt tanker traffic and the Gulf Coast ports that receive the vast majority of the nation's petroleum imports. The huge refineries that dot the coast grind to a halt when a hurricane approaches land, driving the price of gasoline and other petroleum products upward.

"There's a lot of areas of infrastructure that can be disrupted," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.

The National Oceanic and Atmospheric Administration says the 2008 Atlantic hurricane season, which begins June 1, could be slightly busier than average, with a good chance of six to nine hurricanes forming. Two to five of those storms could be major, NOAA said.

A separate forecaster, William Gray's team at Colorado State University, is calling for eight hurricanes, four of them major. On average, 5.9 hurricanes form in the Atlantic each year.

However, hurricane forecasts have historically been erratic in their accuracy. In 1989, Gray predicted a relatively mild hurricane season. That year, seven hurricanes and four tropical storms killed 84 people in the U.S. In 2005, Gray's team forecast eight hurricanes. Instead, 15 hurricanes, including Katrina, struck. The next year, his team predicted nine hurricanes; only five formed.

Over the two hurricane seasons since Katrina, forecasters have routinely predicted lots of storms. Both years proved to be mild.

Ritterbusch said hurricane predictors have been way off the past couple of years.

"I don't think you're going to get that type of a price response unless you get a dramatic storm like we did with Katrina," he said.

Still, Samples notes, two years with little hurricane activity means we might be due for a big storm this year: "The probability tables are looking favorable for us at this point."