There are numerous similarities that come to mind when comparing Hurricane Gustav with Hurricane Katrina three years ago, but there are also some key differences that will likely make this a much less devastating storm.
The first similarity is the date. Hurricane Katrina devastated the U.S. Gulf Coast three years ago almost to the day.
The other similarity is that both of these storms made landfall as Category 3 hurricanes. That appears to be where the similarities end. Hurricane Katrina caught everyone by surprise because her westerly turn toward the U.S. Gulf Coast occurred late at night. No one was looking for this turn, but it happened nonetheless, to the detriment of the U.S. oil industry. The fact that Katrina made the unexpected turn can be ruled the cause for most of the massive damage inflicted on our oil, gas and refining industries.
Conversely, Hurricane Gustav has run an almost perfectly projected path toward our coast. This is an important difference, in that most oil companies have had the time to remove employees and tie down as much equipment as possible -- a luxury not afforded our oil industry three years ago.
There are other major differences between these two storms as well, including the trajectory and speed at which they approached the rigs. Katrina was a slower-moving hurricane and approached the heavy rig areas from an almost due northerly perspective. That meant the frontal wind bands (the most damaging) were hitting rigs squarely, lifting them off their moorings. Gustav, however, approached from a northwesterly path, at a much faster pace. The pace limited the time heavy winds might damage rigs, and the path insulated the rigs from that strong eastern wall of damaging winds.
Also noteworthy is the fact that Katrina cut through oil infrastructures with 125 mph to 135 mph winds. Although strong, Gustav currently has winds of around 110 m.p.h., and is not expected to inflict lasting damage the way the stronger -- and more stationary -- Katrina did.
It comes as little surprise that oil is trading lower as Gustav makes landfall. This storm’s effect on our rigs, which are built to withstand 115 mph winds, should be minimal.
As Gustav is downgraded to a Category 2 storm, oil prices have slid further. Oil is now trading almost $6 below the highs seen at the opening of the special Globex session yesterday afternoon. The really silver lining is that gasoline prices are a solid 14 cents a gallon below the highs seen yesterday. This is good news, as pump prices have retreated 43 of the last 44 days.
As Hurricane Gustav finishes its run into the books, I am less concerned about oil damage creating higher prices at the pump and the grocery aisle than I am about the upcoming OPEC meeting. That looms large on my radar as far as oil prices go.
My concern is that after seeing a further slide in oil prices, OPEC may consider a CUT in oil output from the cartel Sept. 9 has a red circle around it on my calendar.
