It’s known as the hurricane season for a reason, and the Caribbean and surrounding mainland are at risk every year. Starting in September and usually petering out by the end of October, tour operators class this as low season, fares and room rates priced accordingly. I’ve now learned that hurricanes start building off the West African coast as dry air from the Sahara meets moist one from further south. Somehow the clash between the two starts a counter clockwise rotation which then picks up water as it travels across the North Atlantic.
A tropical cyclone with sustained wind speeds of at least 74 miles per hour becomes a Category 1 hurricane on the Saffir-Simpson scale, where the highest Category 5 must have speeds of at least 157 mph. They are given names, most recently of course Harvey and Irma, in alphabetical order starting at the beginning of the season and alternating male and female names.
When Harvey looked set to hit the Gulf coast at Texas, the media started speculating that oil prices would rise. In fact, that energy generally would become more expensive in the US because the area is a big producer and refiner of oil. Yes it is, but the thinking was sloppy. While this year’s battering has been especially bad, and the loss of life regrettable, they’re not new. In 1900 Galveston was practically flattened and an estimated 6,000 died, not forgetting Katrina in New Orleans in 2005.
Look at the four energy charts I have picked out this week and you will see they are very different. Unleaded gasoline futures prices for immediate delivery spiked above $2.00 per gallon as refining capacity in the region was taken out. Consumer demand also rose suddenly as residents were forced to evacuate or warehoused supplies in case of shortages. It has now settled back into the middle of the range that has dominated this year.
Meanwhile, crude oil futures prices in New York actually dipped, precisely because it could not be refined immediately. And anyway, there was plenty of petrol available along the US East coast. What did go up in price was the cost of chartering an oil tanker, at short notice, to ship crude to the Gulf in case extensive damage was done to upstream operations.
Natural gas futures were unmoved throughout as pipelines are far enough away from the coast not to suffer from winds or floods.
My final chart is that of thermal coal futures traded on Zhengzhou’s Commodity Exchange. You’ll be wondering what exactly my train of thought is here. First, China has made a determined effort to become a key trader in commodities, both physical as they import so much, but also futures contracts because these are a price discovery mechanism, something where setting global benchmarks comes in handy.
As urban residents began complaining about smog, and the authorities said they would tackle it, many thought coal fired electricity generating plants would be phased out and demand for coal would drop. But on Sunday Chinese state media announced that they were planning to phase out petrol and diesel cars to be replaced with cleaner electric ones. Being the biggest auto market in the world, 28.03m sold in 2016, it matters. Guess where the electricity will come from? Dirty coal.
Charts for this piece Nymex crude oil, gasoline, natural gas, thermal coal.
