“Extreme” Hurricane Forecast – Energy at Risk

The private forecasting firm AccuWeather predicts an “extreme” Atlantic hurricane season in 2010, and if true, that could have a significant impact on energy prices this summer. In fact, AccuWeather says 2010 will be look a lot like 2008 in terms of hurricane activity. In 2008, there were 17 storms big enough to get a name – the biggest was Hurricane Ike, which killed nearly 200 people and did more than $6 billion in damage as it tore through Haiti and flattened Galveston Island, Texas.   By comparison, last year was the mellowest hurricane season since the late 1990s – only two storms reached land along the Gulf Coast. The Gulf Coast, of course, is an important energy region – it accounts for a quarter of U.S. oil production, 15 percent of domestic natural gas and 40 percent of the nation’s refining capacity. In 2008, dozens of offshore natural gas platforms were destroyed and production fell 98 percent during Ike – it took months to bring production back up. Many gas pipelines and processing plants were shut down altogether and others operated well below capacity. Oil prices spiked more than 15 percent and gasoline inventories slid to 40-year lows after refineries were halted due to lack of electricity. The prospect of a major hurricane season adds to other pressures on energy prices heading into the busy summer driving season. Gasoline prices in the U.S. are predicted to top $3 a gallon this summer, and that number came out before the hurricane forecast. The International Energy Agency (IEA) has raised its global oil demand forecast for 2010 as a result of strong economic activity in Asia – nearly half of the additional demand this year will be from China, IEA says. OPEC is also predicting a demand hike in 2010. In addition, demand has recovered to 2008 levels due to the improved economic conditions in North America, Europe and the former Soviet Union. We have often pointed out that the long-term oil supply response has been weak around the world, so if AccuWeather lives up to its name in 2010 (like it did last year), the short-term impact of reduced Gulf production and refining could be a significant price driver.

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Frank Holmes - U.S. Global Investors | March 10, 2010 | 10:00 pm

Outlook on Gold, Oil and Emerging Markets

Yesterday afternoon I sat down with Aaron Task from Yahoo! Finance’s Tech Ticker to discuss my outlook for gold and oil. Despite a recent run-up in gold prices, I explained to Aaron that I am still bullish on gold. I think there are many compelling factors both from a supply side and from the demand side that looks like gold will trade higher…The only supply coming to the market is from central banks. Supply from mines is contracting as it’s getting more difficult, more expensive to produce an ounce of gold and deliver it to the marketplace. Watch the Discussion on Gold Aaron and I also discussed how each commodity has its own DNA of volatility and investors need to be mindful of that. Specifically, we discussed price volatility for oil. Based on historical patterns, oil could easily jump to $100 or fall twenty dollars to $60. That’d be normal volatility…It’s not just supply and demand around the world, it’s also because oil is priced in dollars and these swings in the dollar exaggerate the supply demand factors. Watch the Discussion on Oil Lastly, I explained to Aaron why the rise of a middle class in emerging markets is a catalyst for a long-term shift in consumption patterns for goods and services. What’s really significant is the rise of the middle class…What happens when you get 30 million out of 1.3 billion people making $50,000 a year? These big changes in consumption patterns take place. That’s why we’re seeing Cartier and Louis Vuitton and all these [luxury stores] opening up throughout China. Watch the Discussion on Emerging Markets Diversification does not protect an investor from market risks and does not assure a profit. The interview references the investment theory of an investment as insurance against a separate market event that could negatively affect performance of an investment. The reference does not guarantee performance or a safeguard from loss of principal by investing in that asset. Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Holdings in the Global Resources Fund, Gold & Precious Metals Fund and World Precious Minerals Fund as a percentage of net assets as of December 31, 2009: Chevron (Global Resources Fund 3.69%), Conoco-Phillips 0.00%, Exxon 0.00%, San Juan Basin Royalty Trust 0.00%, Randgold Resources (Gold and Precious Metals Fund 8.30%, World Precious Minerals Fund 8.14%, Global Resources Fund 1.92%), Royal Gold (Gold and Precious Metals Fund 3.52%, World Precious Minerals Fund 1.14%), Franco Nevada (Gold and Precious Metals Fund 0.34%, World Precious Minerals Fund 0.16%, Global Resources Fund 0.04%), LVMH Moët Hennessy Louis Vuitton SA 0% #10-180

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Frank Holmes - U.S. Global Investors | March 8, 2010 | 10:00 pm

GOLD UP-DATE

Expansionary monetary policies, exploding national debt and global currency devaluations, are creating a very favorable scenario for the price of gold. After […]

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David Levenstein | March 8, 2010 | 10:21 am