Hurricane Season Tepid Thus Far

Here we are halfway through hurricane season and we’ve seen very little activity. In fact, peak season is coming up here in September, so if we can get through another month without a major storm, investors need to consider the ramifications of an average season after last year’s devastation.

The prime beneficiaries of a light-to-average hurricane season would be the re-insurers who decided to continue offering coverage, albeit at much higher premiums, in the Gulf Coast and Atlantic regions even in the wake of Katrina. Higher premium income and lower claim payouts make for solid profitability. The catastrophic loss re-insurers are still down considerably from their highs after the Katrina backlash, so upside remains fairly meaningful. It is true, however, that it only takes one storm to ruin everyone’s year.

Without major storms disrupting the nation’s energy supply, we might also have seen the peak in oil for now. Any spikes in natural gas might also be avoided in the short term. The future direction of the energy markets will then likely be determined by how cold of a winter we get. Last year a mild winter brought natural gas prices down considerably, from a Katrina high of $15 down to under $6. Colder weather this year could serve to boost natural gas prices back up as supplies would be diminished greatly. Aside from geopolitical events, it appears that crude oil prices have peaked, at least for now, as summer driving season will be coming to an end.

So, just to recap. Take a look at the catastrophic re-insurers, and if you are interested in energy, there is probably more upside in natural gas than crude oil over the next quarter or two.

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6 Thoughts on “Hurricane Season Tepid Thus Far

  1. Chad,
    I agree with your upside sentiments for natty gas coming up this winter. Are you familiar with any ETF’s that could leverage this? I’m not asking so much for recommendations, just wanting to know if that strategy is even a possibility as I am not too ETF savvy. Just interested in seeing what is out there.

  2. Chad Brand on August 24, 2006 at 2:44 PM said:

    I don’t believe there is a nat gas etf, but given how quickly new ones are being brought to market, and how hot commodities are, I would not be surprised if one did come out in the future. I have been playing nat gas via U.S. producers. CHK is one that I’ve written about before. APC is another fairly pure play in the gas market.

  3. David Hopkins on August 25, 2006 at 9:50 AM said:


    Methinks you spoke to soon. Check the gulf weather maps. Long term, I assume you are bullish oil & gas, given the simple supply/demand economics world wide?

  4. Chad Brand on August 25, 2006 at 10:24 AM said:


    I’m not saying we won’t get any storms, that’s unrealistic, and it looks like the first could come next week. That said, if we get through peak season, say the next 3-4 weeks without a storm like Katrina, Rita, or Wilma, I don’t think you’ll see new highs on crude. A hurricane hitting land does not ensure a huge spike in oil prices. I just think nat gas is very undervalued relative to crude right now.

    And yes, I will likely remain an energy bull until I see meaingful evidence that the supply/demand outlook is changing. So, either we curb our demand (unlikely), discover a lot more supply (more unlikely), or a global recession hits (will happen eventually, just don’t know when)

  5. Chad/Adam-

    Adam check out PXE which is an ETF from PowerShares Dynamic Energy Exploration Production Portfolio and seeks to replicate the Energy Exploration & Production Intellidex Index. The Fund invests 80% of total assets in common stocks of companies engaged in energy exploration and production.

    I think it offers the volatile swings you’re looking for to play the natural gas market…


  6. Chad Brand on September 14, 2006 at 4:29 PM said:

    Here are the top 10 holdings of that energy ETF (45% of the total). It has a little bit of everything.

    Marathon Oil 5.24%
    EOG Resources 5.12%
    Xto Engy 5.08%
    Devon Energy 4.98%
    Occidental Pet 4.85%
    ExxonMobil 4.84%
    Chevron 4.83%
    Anadarko 4.05%
    Kerr-McGee 3.18%
    Energen 3.08%

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