Energy Falls Despite 'Above Average' Hurricane Forecast

Thursday, 19 May 2011 | 1:45 PM ET

The federal government’s main weather forecasting agency warns of an “above average” hurricane season this summer.

Yet, the energy market yawns.

Kei Uesugi | Getty Images

That's because the pre-season hurricane forecasts are too early, too broad and do not indicate where a storm will actually hit, according to traders.

The National Oceanic and Atmospheric Administration dialed back its Atlantic hurricane season forecast a little from last year. NOAA is predicting there will be 12 to 18 named storms, and six to 10 hurricanes. Three to six of those will be major hurricanes — Category 3, 4 or 5 — with winds of 111 miles per hour or more. The Atlantic hurricane season typically lasts from June 1 to November 30.

NOAA is predicting this season we’ll see one less storm than last year. But so did Colorado State University in their 2011 forecast that was released in the beginning of April. CSU predicted the 2011 Atlantic Hurricane season would see 16 named storms, including five major hurricanes (Category 3 or higher). So NOAA’s forecast wasn’t much different.

Energy traders also point out that while there were five major hurricanes — in line with NOAA’s range of forecasts — none of them made landfall near any key U.S. oil or gas facilities. But that’s not the only reason this year’s NOAA forecast hasn’t had any immediate impact on energy prices today.

2011 NOAA Predictions
The forecast on this year's hurricane season and the impact on oil, with Anthony Grisanti, GRZ Energy; John Woods, JJ Woods & Associates, and CNBC's Sharon Epperson.

NOAA's pre-season hurricane forecasts are much broader than the closely watched outlook's from Colorado State University and some private forecasters. As a result, these hurricane forecasts have a greater chance of making their mark. Last May, NOAA forecast there would be a 70 percent chance that we'd have between 14 and 23 named storms and three to seven would be major hurricanes. That's a huge range. It’s hard to miss that. The season ended with a total of 19 named storms and five reached hurricanes of Category 3 or higher.

The real impact, of course, comes when a storm or hurricane makes landfall in a major metro area or near a key refinery complex. Last year was the third most active on record and no storm made landfall on the continental U.S. Unlike some private forecasters, NOAA does not issue forecasts on how many storms will make landfall or where they could make landfall in its pre-season outlook.

So what more do traders know today about this year’s hurricane season than they did yesterday? Not much.


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