Image: A potent 150 mph Gustav striking western Cuba.

Those of us who love the weather live for times when things gets “exciting,” and by exciting, I mean stormy, rainy, snowy, or generally any other state of the atmosphere that the rest of the population despises. But not today. Gustav is now a strong Cat. 4 at 150 mph and will likely become a Cat 5 at some point in the Gulf. Not to sound overly dramatic, but anybody who feels excited about such a storm should feel ashamed of themselves and should abandon the field for a more appropriate vocation, perhaps the firing squad, or dentistry.

This is going to be a major disaster for Cuba, and likely even worse for the U.S., baring something highly unexpected. Not only is Gustav a powerful storm, it is a large storm, with TS force winds extending out 175 miles. By comparison, Katrina had TS winds to 230 miles. It is not out of the question that by the time the storm enters the Gulf it could become that size. As soon as the storm emerges from Cuba (which may knock the intensity down to 135 mph), it will pass over a pool of extremely warm water. It may clip a cooler pool after that, but at the speed it is moving, I don’t think the storm will have ample time to weaken over it. Not until it approaches the continental shelf will there be a good opportunity to weaken a bit.

Other than the initial intensity, everything I said below still holds true. I still hold to what I said below about the intensity and the continental shelf, but since larger storms are less prone to abrupt weakening, I say that there is a chance that the storm will make landfall as a Cat. 4. If that did happen, it would mark the first time since Andrew in 1992.

If Gustav doesn’t cause oil to jump, I don’t know what will. But there are more important things to thing about right now.

I will probably have a more complete post tomorrow morning.

Previous Post

Due to the seriousness of the storm, this is going to be a rather cut and dry (read: dull) post. As has been long anticipated, Gustav rapidly intensified. As of 11am, winds were up to 125 mph, up from 70 mph 24 hours ago, making it a strong Cat 3 storm on the Saffir-Simpson scale. Recently the storm appears to be leveling out in intensity, and actually looks a little bit ragged. This is likely only temporary.

Image: Recent visible satellite showing a large and very dangerous Hurricane Gustav nearing the Isle of Youth.

The storm remains over open water and will have the chance to strengthen to a Cat 4 before making landfall on the Isle of Youth and then mainland Cuba. This is a large and extremely dangerous storm and is the greatest threat to the US coast since Rita in 2005.

The Track

Image: Latest NHC track. Note the reduction in forward speed as it reaches the coastline.

The Good News: There really isn’t any. Interaction with Cuba will not cause significant weakening of Gustav, maybe 10 mph, and the storm will likely re-gain that intensity quickly.

The Bad News: Gustav’s rapid intensification has helped to pull the center northward and thus Gustav is about 15 miles east of its projected path. This increases the threat to New Orleans. Future computer model and NHC forecasts may eventually have to shift eastward, if this motion continues.

Otherwise, there is a better degree of agreement amongst the models through 48 hours anticipating a quick, northwest pace until the storm approaches the coastline. At this point, the models diverge, predicting a strong ridge will build in from the north which will slow the system dramatically and also cause it to take a turn to the west. However, they are in disagreement on how strong this ridge will be, which results in a wide range of landfall locations, from central Texas, to Alabama. However, there is confidence that the storm will greatly slow down once it encounters the ridge. Not only will this increase the flooding threat, but the longer a storm meanders in the GOM, the more potent a storm surge it can pile up in front of it.

The Intensity Forecast

The Good News: There actually is some. Wind shear has increased over Gustav and is now 15-20 mph, which should remain as such for the rest of its life. This might help to prevent rapid intensification.

The intensity of storms as strong as Gustav are dictated by “eye-wall replacement cycles” in which a storm’s eyewall will contract before collapsing. A larger eye will then reform, before the cycle repeats itself. Such cycles can result in rapid weakening, of up to 20 mph, and take several hours. The timing of these cycles will have a strong influence on Gustav’s intensity as it nears the coast. Recently satellite images show that the eye may be contracting so a replacement cycle may be in the offing in a few hours.

Also, the slowing down near the coast means that Gustav will spend more time over the waters of the continental shelf. These waters, especially those off the Louisiana coastline, have a significantly lower heat content than the rest of the Gulf. Powerful hurricanes have a history of passing over these and weakening rather quickly. Hurricane Opal ’95 rapidly intensified to powerful 150 mph Cat 4 as it passed over a warm water eddy. As it entered the waters of the continental shelf, however, it weakened just as fast down to a 115 mph Cat 3. Hurricane Lili ’02, which is following a track very similar to Gustav, passed over similarly cold water and weakened from a 145 mph Cat 4 to a 90 mph Cat 1 before making landfall.

Image: 145 mph Cat 4 Hurricane Lili at maximum intensity over a warm water eddy.

Image: A much weaker 90 mph Lili at nearing landfall after passing over the colder waters of the continental shelf.

The NHC only weakens Gustav to a 125 mph Cat 3. However, I believe this is conservative, and would not be suprised to see a full two categories of weakening i.e. if it strengthens to a Cat 4, landfall as a Cat 2; to a Cat 5, landfall as a Cat 3. One big caveat: Just because the winds have weakened does not mean the surge has followed suit. A storm builds up its surge as it strengthens, and it takes this surge a long period of time to fall back. Katrina, for example, made landfall as a weakening category 3, but it flooded Louisiana and Mississippi with a surge characteristic of a Cat 5 (>20 feet).

The Bad News: Gustav has winds of 130 mph. Enough said.

The Effect on Oil/NG Production

Image: Latest NHC Track overlaid on the rig density in the GOM.

While the recent jog to the north is slightly disconcerting, there is still likely to be a severe impact on the energy infrastructure in the Gulf. At least 80% of the Gulf’s production will be shut down and the rate that the rigs will come back line will depend on a) the damage, obviously; b) the forward motion of Gustav as it nears the coast; and c) the track of Hanna behind it.

Image: Anticipated shut-ins as a result of Gusav. It is predicted that oil production will not reach 80% until October. Image Courtesy: KAC

According to expert Chuck Watson, of Kinetic Analysis Corp, if the HWRF model, which stalls a Cat 5 storm off the coast, verifies “This scenario results in a loss of nearly 50% of the GOM production/processing capacity for the rest of the year. Ouch.”

Offshore rigs are not the only worry. In 2005, the rains from Rita flooded inland refineries at Port Arthur, Tx that took several weeks to get back online.

Image: Anticipated downtimes from some of the largest refineries on the Gulf Coast. Image Courtesy: KAC

It appears now that landfall will occur sometime before the market opens back up on Tuesday. Expect very high volatility, in one direction or another.

Trading

I was very surprised with yesterday’s commodities non-event. Not only was there no spike, there was no volatility. I suppose this is to be expected heading into a long weekend, but still. Either they’re all morons, or they have crystal balls and know something I don’t.

I was very tempted to sell out of some of my positions. However, at the moment, Gustav is taking the worst possible track into the Gulf and I believed the risk/reward was favorable and so I manned up and did nothing. I am currently holding, in order of position size, CHK, VLO, RIG, UNG, and OMNI.

I was impressed with the call option volume, particularly in VLO and UNG yesterday. UNG (36.76) had notable volume in its Sept 50 and 60 calls. While this might be the hedging of short positions, I can’t imagine anyone stupid enough to head into the weekend short equities.

Hanna

The computer models love Hanna, intensifying it to a large and dangerous hurricane, but the atmosphere seems to have a vendetta against it as strong shear that has been forecast for days to slacken, remains strong.

Image: Infrared satellite showing Both Gustav and a large, but disorganized tropical storm Hanna.

The official forecast, in respect of the current conditions, only conservatively strengthens Hanna to a 70 tropical storm, well below all of the guidance models.

The track is climatologically unusual. A developing high pressure area will force Hanna west-southwestward towards Cuba. Some of the models indicate that this will drive it into the Caribbean or Gulf, while others suggest an east Florida landfall.

Out of respect for climatology, I think the chances of Hanna hitting Florida and heading north are greater than it somehow squeezing into the Gulf.

Disclaimer: This is a very serious storm. These are just my opinions. Don’t make life and death decisions by what you read here. Listen to your local emergency management officials before deciding whether to evacuate and making preparations.