With the peak of hurricane season coming quickly, many continue to ask why hurricane season plays an increasing role in gasoline prices during these months. The answer isn't as simple as it sounds for many. The short answer is that hurricanes have hit oil infrastructure hard the past few years since the record setting year of 2005. Hurricanes have tracked towards the Gulf, home to a significant portion of infrastructure.

Looking at hurricanes from the early 2000's, I see a few storms did track into the Gulf, but since 2005, the number of strong storms in the Gulf has risen. In 2000, just one tropical storm hit the heart of oil infrastructure. In 2001, it was the same- just one tropical storm. In 2002, it was one hurricane and two tropical storms. Jump to 2005- four hurricanes and one tropical storm rammed oil installations. In 2008, it was two hurricanes and a tropical storm.

So a few more big storms as of late- and that's what folks remember most- how they feel the hurricane season has been as of late- and it has been rough. So when a new tropical system develops, traders and investors get into oil to try and make a profit, and also to cover their positions or to ensure supply for their clients. With all the additional money flowing into oil, it pushes prices higher as there becomes more demand for oil contracts.

While most of the reason for increases is because of the increase in wholesale cost, some unscrupulous station owners also decide to gouge customers and take advantage of fear and raise prices. Motorists should stay tuned to our Facebook page for more information as the storm season progresses and for emergency updates.

I'll use some bits from a Bloomberg story as well:

“This is going to leave the doors wide open for activity coming off Africa to spin up into cyclones,” said Jim Rouiller, a senior energy meteorologist at Planalytics Inc. in Berwyn, Pennsylvania. “The storms we will be talking about in the next few weeks will be the real deal. These will be big- sized hurricanes.”

The Statistics

Three storms have formed so far this season, a start that appears slow but is ahead of the statistical average. The second named storm, which doesn’t normally occur until Aug. 1, came in July, and the first hurricane, statistically due on or after Aug. 10, appeared in June. If all the storms forecast by Colorado State materialize, 2010 will be tied with 1969, the fifth-busiest season on record.

Energy companies are reacting to the first signs of danger. They halted 26 percent of oil production and 14 percent of natural-gas output in June, when Hurricane Alex churned through the Gulf into Mexico, according to the Bureau of Ocean Energy Management, Regulation and Enforcement. The operators idled 52 percent of oil and 24 percent of gas output the following month before Tropical Storm Bonnie dissolved south of Louisiana.

Five years ago, in the most-active hurricane season on record, Hurricanes Katrina and Rita killed more than 1,800 people, caused $91 billion in damage, destroyed 115 energy platforms in the Gulf, and shut down 95 percent of Gulf oil production and almost 30 percent of U.S. refining capacity, according to government reports. Gasoline prices soared to as much as $5 a gallon and shortages were reported across the South.

Lessons Learned

Those two storms changed the way Valero Energy Corp., which operates six Gulf Coast refineries, prepares for intense storms, said Bill Day, a spokesman for the company in San Antonio.

“A couple of things that we learned in the wake of Katrina and Rita was to get electrical equipment fairly high off the ground in case you get water in the plant from flooding,” Day said. Businesses also need “secure communication and multiple sources of communication, including satellite phones,” he said.The Gulf of Mexico is home to about 31 percent of U.S. oil output and about 10 percent of gas production, according to the Energy Department. It’s also the site of the worst oil spill in U.S. history, caused by the April 20 explosion at BP Plc’s leased rig. The spill is still being cleaned up.

Costs Estimated

If all Gulf platforms were closed, the daily production loss would be $160 million to $170 million, based on current prices, according to AIR Worldwide, a catastrophe risk-modeling firm.A repeat of Katrina also would cause $6 billion to $9 billion in damage to offshore platforms, rigs and wells, according to models created by Risk Management Solutions Inc. of Newark, California.Since 1995, when a cyclical increase in Atlantic hurricanes began, 89 percent of all storms have formed after Aug. 1, according to the hurricane center. The hurricanes that do about 85 percent of the damage when they hit land typically form between Aug. 20 and Oct. 20, Gray said. Stockpiles, an increase in the number of rigs and higher onshore production are moving natural gas prices more than storm fears, according to Cameron Horwitz, an analyst at SunTrust Robinson Humphrey Inc. in Houston.

Market Reaction

“I don’t think the market is just that concerned about it,” Horwitz said. “The reaction to the early storms was somewhat telling in that there wasn’t much of a reaction.” Inventories of gasoline, fuel oil, jet fuel and crude oil should be sufficient to withstand disruption, said Andy Lipow, president of consulting firm Lipow Oil Associates LLC.“If you were looking at the macroeconomic picture in conjunction with the heart of the hurricane season coming up, then you probably want to own it rather than sell it for the next few weeks,” Lipow said in Houston. If hurricane activity drops after Sept. 10, the statistical peak of the season, “then you would probably want to be selling,” he said.The storms that have formed so far this year have been minor events compared with what is likely to come, Rouiller said.

Pre-season forecasts from Colorado State and the Hurricane Center were for 2010 to be one of the worst hurricane seasons on record in the Atlantic in part because of the ocean’s warmth.

Storm Fuel

Sea surface temperatures in the mid-Atlantic between the Lesser Antilles and the African coast averaged 1.2 degrees Celsius (about 2.2 degrees Fahrenheit) above normal from March to June, warmer than the 0.92 degrees in 2005, said Richard Pasch, a senior specialist at the Miami hurricane center.“That’s the fuel for tropical cyclones, the water vapor that’s evaporated from warm ocean surface,” he said. Colorado State, in Fort Collins, forecast 18 storms for 2010, and the National Oceanic and Atmospheric Administration predicts 14 to 20 from June 1 through Nov. 30. Most storms grow out of weather systems known as African waves, organized masses of thunderstorms that move into the Atlantic about every three days from June to October, said Gray’s colleague, Phil Klotzbach, a research scientist in the Department of Atmospheric Science. There are about 60 to 70 per season and that number doesn’t change much from year to year, he said. “You’ll get some years with three hurricanes and other years with 10 or 12, but you won’t get one year with 40 waves and one year with 150,” said Klotzbach, the lead author on the closely watched CSU seasonal forecasts.

Katrina Retired

A storm receives a name from a list that changes annually when its sustained winds reach 39 miles per hour. The Hurricane Center ran out of names in 2005 and used Greek letters instead when 28 storms developed, including Katrina, which led to the failure of levees around New Orleans and the flooding of 80 percent of the city. The name Katrina will never be used for a storm again. Gray, 80, who began making the seasonal forecasts in 1984, is emeritus professor of atmospheric science at Colorado State and founder of the school’s hurricane forecast team. He rings the bell, a gift from his late wife 15 years ago, in the meeting room where his team gathers daily starting Aug. 1 to monitor the activity in the Atlantic. “People have been saying, ‘Hey, where are the storms?’” said Klotzbach. “The storms are right where they should be. There have been none. When the bell is ringing, the storms should be coming.” With less than 18 weeks left until the hurricane season ends Nov. 30, the Atlantic will need to produce about one storm a week to meet Colorado State’s forecast. That’s still possible, Klotzbach said. “There have been years where six, seven, eight storms form in September alone,” he said. “Certainly with the way the conditions are, it wouldn’t surprise us to have multiple storms. Right around the time that Dr. Gray will be ringing the bell.”