Friday, August 19, 2005


This is a test, it is only a test... Yeah, right. This is a test of whether oil (in particular gasoline) ise as tightly strung as I think, or if there's still some slack on which to draw.

Recall that what I'm reading says supply and demand are matched. If someone has to stop for a bit, nobody else can take up the slack. If so, since gasoline demand is fairly inelastic in the short term (we need a certain amount regardless of price, though over time we can change that demand), the result of such an unexpected shortage would be a severe jump in prices. Not just the roughly 25% we here in the US have experienced over the past year. I'm saying at least 10-15% (locally, 25 to 37 cents per gallon) in the space of a week or two. OK, that's background.

This is an update press release from the National Weather Forecast system. Let me quote three important sentence fragments:

NOAA is calling for a 95% to 100% chance of an above-normal 2005 Atlantic hurricane season [.]
The updated outlook calls for an extremely active season, with an expected seasonal total of 18-21 tropical storms (mean is 10), with 9-11 becoming hurricanes (mean is 6), and 5-7 of these becoming major hurricanes (mean is 2-3).
Therefore, for the remainder of the season, we expect an additional 11-14 tropical storms, with 7-9 becoming hurricanes, and 3-5 of these becoming major hurricanes.

In other words, last summer redux. Now everyone remembers the triple run through Florida, but that hid something more relevant and significant. The hurricanes forced the Gulf oil platforms to shut down for almost a month altogether. And each of them caused about a 4-day delay in oil deliveries to the gulf refineries. We had a bit of a surge from those two little items, remember?

95 to 100% chance of at least three major hurricanes over the next 6 weeks. I'm betting we see gas prices to the aforementioned jump. That's a national average of ~2.80 to $2.97 per gallon. (West Coasters will bust the $3.00 mark cleanly.) Oh, it'll drop after -- the hurricane is a short-term effect -- but it's going to have some interesting aftershocks.

It's those aftershocks that are the test. Just how well buffered are we, economically speaking? Got some slack? Facing a little stagflation? Or on the precipice's edge of a major collapse? We'll have a pretty good idea by mid-October, I think, if not before.


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