$6 Gas? One Nasty Hurricane Could Do It




One well-aimed Category 5 storm in the Gulf of Mexico -- certainly possible in the active season being forecast for this year -- could cripple oil and gasoline production, and the economy.

Remember the jump in gasoline prices after hurricanes Katrina and Rita dealt a one-two punch to the Gulf coast in 2005? If a storm of similar or greater strength should ever land a direct hit on Houston, drivers might find themselves looking back wistfully. So much of the oil and gas industry is located in the region that the economic consequences -- let alone the potentially devastating human costs -- of such a hit could be disastrous.

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[/align][/align]The insurance company rating firm A.M. Best recently issued its forecast for the 2007 hurricane season and included an assessment of such a strike. Fittingly, it's entitled its report calculating the effect of such strike 'One Blow Away from $6 Gas.' "A Category 5 storm moving on the Houston area ... would dwarf energy industry disruptions seen from Katrina and Rita," says the report, relying on scientific modeling done by two catastrophe-modeling firms. "Forty percent of U.S. refinery production could be shut, as well as nearly all offshore production facilities."

Unfortunately, the prospect of such a strike -- and such a price reaction -- is not far-fetched. An active hurricane season is expected, with four to five storms expected to be Category 3 hurricanes or higher. Driven up by other factors, gas prices are already rivaling the highs seen after Katrina struck two years ago. "In the current environment ... even the suggestion of a developing hurricane headed in that direction has the potential to push energy prices significantly higher, producing economic disruptions," the report says.[/align][/align]From the A.M. Best Company[/align][/align]