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Watch out for those hurricanes



April 17, 2008 – Comments (3)

As I write this, natural gas is sitting at over $10.50 and oil is right around $115.  Their strength has basically been a function of increasing global demand, supply concerns with OPEC stating that it will not raise production for now while a plateau seems to have been reached in oil production in Russia and Mexico, and the falling dollar.  I haven't seen much talk about something that could really send oil and nat gas prices to the moon, a hurricane that hits the Gulf of Mexico. 

The June 1st start of the Atlantic hurricane season is rapidly approaching.  After a devastating hurricane season in 2005, the Gulf of Mexico really has not been hit by a major storm since...despite forecasters' predictions of above average activity.  How long do you think that we will be so lucky?  I certainly am not rooting for one, but eventually a storm, and possibly a big one will hit the Gulf.  I can't even imagine how high a storm, or even the threat that one might hit the Gulf would send oil and nat gas prices.

Despite the lack of accuracy in their recent predictions, the research team at Colorado State University founded by Bill Gray is considered to be the best there is in the business of forecasting hurricane activity...Author's note.  How in the heck is the leader in this field located in Colorado?  Wouldn't it make more sense if they were located in Florida or some place like that?  Hmmmm...  Anyhow, the team recently raised the number of tropical storms and hurricanes it expects to form during the upcoming Atlantic storm season: U.S. Forecaster Raises Atlantic hurricane number.  Due to favorable storm-forming conditions including La Nina in the Pacific Ocean, fairly warm sea surface temperatures in the tropical eastern Atlantic, and the strong possibility of weak trade winds, they are predicting that we will see 15 tropical storms and 8 hurricanes this season.  This compares with a long-term average of 10 and 6, respectively. 

In their forecast, they went on to say "Based on our latest forecast, the probability of a major hurricane making landfall along the U.S. coastline is 69 percent compared with the last-century average of 52 percent."  I know that this percentage includes portions of the U.S. cost that do not have oil or gas production, but to simplify things they basically are saying that there is almost a 70% chance that an extremely bullish event for natural gas and oil prices will happen at some point later this year.  I feel extremely sorry for anyone who lives in the areas who has to go through a major storm, the devastation in New Orleans was extremely sad.  Having said this, this news has to be considered bullish for natural gas and oil.  I have been very long E&P companies in my personal portfolio for quite some time.


3 Comments – Post Your Own

#1) On April 17, 2008 at 8:06 AM, nuf2bdangrus (< 20) wrote:

I am sifting for a list of good small independant E&P companies, and my list of those (perhaps not all pure E&P) include:  NXY, CNQ, ECA, COG, XCO, EOG and FO.V.   The big ones seem richly priced, and I am looking for a pullback.  Any good ones you like?  (I stupidly sold CHK at 34)

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#2) On April 17, 2008 at 8:20 AM, mandrake66 (72.90) wrote:

How in the heck is the leader in this field located in Colorado?  Wouldn't it make more sense if they were located in Florida or some place like that?

Well, they'll never suffer the irony of shutting down due to a hurricane. Rockslide or avalanche maybe. 

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#3) On April 17, 2008 at 11:00 AM, TMFDeej (97.64) wrote:

Good point mandrake :).

Hey nuf2bdangrus.  I personally own APA, APC, DVN, XTO, and one that I am not allowed to talk about because I added to it a few days ago.  They have been on quite a run lately, so you might want to wait until a pullback to pick up some shares.  Or nibble now with the intention of buying more later.


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