my pick tsafi.. ADDL.. been buying in mid .50 for last two weeks hurricane stock that is solid..
market will just start to open their eyes to plays like these imo
SAN FRANCISCO (MarketWatch) -- Energy traders will get a little extra help this month to predict the moves in their volatile market -- and it'll come in the form of a hurricane. The Chicago Mercantile Exchange will launch trading of hurricane futures and options contracts on March 12 ahead of this year's Atlantic storm season, which begins June 1. It'll be an expansion of the CME's existing weather derivatives product line and the contracts will cover five regions: the Gulf Coast, Florida, the Southern Atlantic Coast, the Northern Atlantic Coast and the Eastern U.S. Why is that important? Weather products, traded on the exchange since 1999, have helped energy traders gauge their risks -- offering a peek at energy demand based on a market consensus of weather. And the new offering may even improve on that concept. Like the temperature contracts, "the new hurricane contracts will be just as important to commodity markets impacted by these tropical storms," said Ben Smith, president of First Enercast Financial, which offers weather risk-management services. "There are numerous forecasters releasing hurricane predictions based off scientific data and studies," he explained. "The price discovery this hurricane market will produce will help provide a consensus hurricane forecast." And that, in turn, will "allow other markets, such as energy, to better assess the risks associated with these devastating storms," he said. Cause of a commotion There's no denying: "hurricanes have a proven impact on energy supply and demand," said Smith. Take the 2005 hurricane season, for example. Hurricanes Katrina and Rita together caused the shut-in of more than 30% of yearly oil production in the Gulf of Mexico between Aug. 26, 2005 and June 19, 2006, according to data from the U.S. Minerals Management Service. The two storms also shut-in 22% of that region's yearly natural-gas production. 'The devastation of Hurricane Katrina and the 2005 season made us painfully aware of our vulnerabilities to hurricanes, and cries out for a vehicle that can offset that risk.' — Phil Flynn, Alaron Trading The cut in production caused by the storms helped pull natural-gas futures to an all-time high of nearly $16 per million British thermal units in mid-December. And the impact of hurricanes is really two-fold. "If a storm hits the producing region in the Gulf, it shuts-in production," said Smith. And "if the storm drives inland causing power outages, it reduces energy demand." "Interestingly enough, the devastating 2005 storms Katrina and Rita actually shut in just as much demand as supply, even though they both had a bulls-eye hit in the producing region," he said. Overall, the impact of hurricanes in recent years "has done more damage to energy infrastructure than at any time in history," said Phil Flynn, a senior analyst at Alaron Trading. Even the lack of storms in the Gulf during the 2006 season helped sink natural-gas prices at the end of the summer, he said. And it's not just energy that's affected by hurricanes -- "it's real estate, insurance companies, construction, tourism," and other sectors, he said. "The devastation of Hurricane Katrina and the 2005 season made us painfully aware of our vulnerabilities to hurricanes, and cries out for a vehicle that can offset that risk," Flynn said. Filling a void And having tradable contracts for hurricane futures will offer traders that vehicle -- maybe even more. "What we're trying to do is give tools to traders to hedge weather conditions that really affect their business or the economy," said Rick Redding, managing director of CME products and services. "When you see a hurricane, you tend to see big dislocations" with, for example, well and pipeline shut downs in the Gulf of Mexico, Redding said.
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