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.