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Crude Oil & Tropical Storm Isaac: What You Need to Know
Storm damage and supply disruptions equal a rise in crude oil prices, right? Our brief historical rundown sets the record straight
By Nico Isaac
Mon, 27 Aug 2012 17:15:00 ET
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If you want round-the-clock coverage of Tropical Storm Isaac’s moving trajectory, just ask the meteor-OIL-ogists -- a.k.a. the mainstream financial experts of crude oil.

They say:
 
·         “Weather patterns are a leading barometer for the price of oil.”
 
-- AND --
 
·         “There is a positive correlation between falling oil production (due to storm damage) AND rising oil prices.”
Actual, real-world historical data says -- such a correlation is not exactly iron-clad:
Exhibit 1: August 29, 2005. If ever there was a time for adverse weather to create a perfect bullish storm for crude, it was the day when Category Five Hurricane Katrina slammed into the largest oil producing region in the United States, the Gulf of Mexico. Upon impact, Katrina became the costliest natural disaster in U.S. history, submerging 80% of the city of New Orleans under water, forcing 95% of oil production to shut down, and putting 15% of the region’s oil refining capacity on the blink.
Not surprising, Katrina’s devastation prompted a string of financial forecasts for $100 oil and the end of affordable energy, as the world knew it.  Wrote an August 2005 New York Times:
“What we have now is a runaway freight train.” 
YET -- on August 31, 2005, said freight train jumped tracks going south. Oil prices reversed from their then record peak and embarked on a 3-month long sell-off to 10-month lows. Right alongside the 21.8% retreat in crude prices was a 59% decline in natural gas and 42% drop in unleaded gas.
Exhibit 2: September 8-12, 2008. Hurricane Ike, then referred to as “Katrina’s older, meaner brother.”  Wrote one news item at the time:
“With this hurricane coming up… It’s hard to see that [oil] prices could really collapse in the coming two weeks.” (CattleNetwork.com)
YET -- after Ike made landfall and ravaged the Gulf Coast region on September 15, oil committed fully to the DOWN side. From its all-time high set in July 2008, the market plunged nearly 70% to a 5-year low in 2009.
Exhibit 3: April 20, 2010. Deepwater Horizon oil spill, the worst environmental man-made “storm” in US history.
·         Setting: the largest oil-producing center in the U.S. -- all of which resulted in the tragedy being called "Obama's Katrina."
·         Scope: 200 million gallons of oil leaked (far surpassing the 11 million gallon Exxon Valdez disaster of 1989.)
Result? Bearish: After circling the wagon of a 19-month high, crude oil turned down on May 3, 2010, in a gut-wrenching, 20% sell off to seven-month lows.
Weather patterns are not the driver of near-term trend changes in oil; Elliott wave patterns are. Tropical Storm Isaac is expected to make landfall tomorrow. You can see the likely trajectory of oil prices -- right now.
 
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Crude Oil's Near-Term "Weather" Chart: Is A Bullish Storm Coming?

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Tags: crude oil, Elliott wave
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