Speculative Trading on Oil Could Provoke Huge Tragedy if Hurricane Hits

Hoo Ra! Hurricane season is here. Most people don't notice or care, but for coastal dwellers in mandatory evacuation areas (like me) who live in Hurricane Alley, it means a major preparation. We move essential files into waterproof portable boxes; we pull the hurricane kit out of the attic; we keep a toiletry bag prepped and ready to grab and go; we attend town hall hurricane preparedness meetings; we read and memorize letters and emails with details about the new communication system and evacuation plans local mayors formulated after the disastrous Rita experience; and more, including sending the inland residents the stink-eye if they so much as say anything other than, "Shelter in place."

But the biggest thing we like to do is maintain a full tank of gas.

Unfortunately, we are staring two major obstacles in the face to safely evacuating if we are called to (and we live in Zone 1, one of the first to evacuate): panicked inland residents and speculative traders who are driving up the cost of oil in expectation of a terrible hurricane season, which could drive gas up to $5 to $6 per gallon.

When Rita hit our area, people were still reeling from Katrina. Inland residents forgot the rule---run from water, hide from wind---and left ahead of the mandatory evacuees, such as our family, trapping us on the highway in terrible traffic and, eventually, trapping us on the highway when we ran out of gas. Local officials told us to shelter in our cars. For two days.

Rumors ran rampant on the stopped highways, a graveyard of cars. Among grisly and macabre stories of death, there were also rumors of salvation: gas trucks on the way, city buses coming to take us to the shelters. They never came.

What we experienced was enough to convince us that evacuating was more dangerous than sheltering in place, even though we live surrounded by three bodies of water directly attached to the Gulf and run storm surge risks.

If speculative trading on gas in anticipation of the predicted active and intense hurricane season---"well above average" says the forecast---does keep driving up cost at the pump, we may have a lot of company. People are already feeling the pain of paying nearly $4 per gallon. I don't know how many could cover the possible $5 to $6 per gallon.

Believe it or not, the Gulf Coast still hasn't completely recovered from Katrina and Rita. The United States is very dependent on oil drilling platforms in the Gulf of Mexico, and those hurricanes took a fair number of them out. Some companies and private owners were economically devastated and unable to rebuild and recover, so there are already less. That means less oil coming into refineries, 40% of which are located on the Texas and Louisiana Gulf Coast, also known as Hurricane Alley.

According to David Goldman, CNNMoney.com staff writer

After Katrina and Rita, 30% of Gulf Coast refineries were shut down or operating with reductions.
. . .

It's rare for a refinery to be totally knocked out by a hurricane, but many are susceptible to wind and water damage that can limit supply to and from the facilities. Similar to offshore drilling platforms, refineries are sometimes shut down for more than a week before they can return to full operability, according to API Refining Issues Manager Cindy Schild.

Part of the reason Katrina and Rita led to such a spike in gas prices was that there weren't enough functional facilities to make up for the lost output. Although capacity at many U.S. oil refineries has been expanded, there hasn't been a new refinery built in the United States in three decades.

There is no guarantee that the ripe conditions will even produce a hurricane, much less that it will make landfall or do much damage, however, that hasn't slowed speculative traders from betting on the likelihood that it will. Goldman writes

But even before the start to hurricane season, speculative traders have started to send oil and gas prices higher in anticipation of a hit to supplies.

"We're already seeing a hurricane premium on gas of about five to 10 cents per gallon," said Alaron Trading energy analyst Phil Flynn. "Especially since Katrina, we've seen traders build that into prices."

The last huge gas spike caused by a hurricane happened in the late summer of 2005, when Katrina and Rita brought many Americans their first glimpse at $3 a gallon for regular gas. The destruction from Hurricane Katrina alone led gasoline prices to jump 46 cents, or 17%, in just one week to a national average of $3.11, according to the U.S. Energy Information Administration.

So, even you inlanders may need to prepare for an active hurricane season. You may not be packing bags and stowing files in waterproof boxes, but you better budget a significant increase in your gas budget.

Hurricane season ends on November 30. So don't expect any relief before early December, and that's only if this prediction is off:

The Colorado State University team's forecast now anticipates 15 named storms forming in the Atlantic basin between June 1 and Nov. 30. Eight of the storms are predicted to become hurricanes, and of those eight, four are expected to develop into intense or major hurricanes. (Credit: NOAA)

Politicians and officials let us down extremely badly when the last major hurricanes hit. They reassure us with each subsequent hurricane season that they are doing their best to prepare and protect citizen in the event of a natural disaster.

Here's one big way, and it doesn't involve a "gas tax holiday." It involves setting a plan in place where gas---arguably the most essential item needed for evacuation if a hurricane is slotted to hit a region---is both accessible and affordable for evacuees.

Candidates and politicians alike need to step up to the plate.

When not playing Rochambeau to decide whether to evacuate or shelter in place, Julie writes at Using My Words and is Editor and Chief of Moms Speak Up, a site dedicated to healthier politics, healthier lifestyle, and healthier world.

Comments

[Kris]

You know, I just read that nearly 50% of people living along the coast, in Hurricane Alley, etc., have absolutely no plan of evacuation, no hurricane kits, essentially no hurricane preparedness whatsoever. What is going on?

I did read that CNN article. This hurricane season is supposed to be worse than last year.

[Izzy]

The scenarios you painted and the one you experienced terrify me. In Tampa we have water on all three sides, too.

We have a minivan that we will keep despite the gas issues because we have four people and three pets (in carriers) and if we evacuate, we need room for all of us — but the gas thing is a disaster just waiting to happen and I know from past experience that Florida officials seriously have no idea what they're doing.

My solution will be to try and keep both of our tanks full as often as possible. It's a pain and it's expensive but the possibility of waiting in long gas lines and paying $6/gal with a 'cane coming is even worse.

[cynematic]

I worry about the same thing, only in the context of earthquake preparedness. It's not something we confront every year as you do with the hurricane season, but we're all living on borrowed time here on the San Andreas fault.

Good thought on a gas plan/evacuation policy--you'd think the governors and state reps of a region would step up already.