Why Gulf storms make oil traders so jumpy

2007 should see more hurricanes than usual, and despite better preparations by the oil industry, only so much can be done to defend against another Katrina.

NEW YORK (CNNMoney.com) — So a little storm swirled off the Texas coast Wednesday, and oil traders got all excited.

Crude prices rose nearly a dollar Wednesday as Tropical Storm Erin, the first named storm to hit the Gulf Coast in 2007, approached land.

“It highlights market players’ sensitivity to Katrina,” Mike Fitzpatrick, an analyst at MF Global in New York, said Wednesday when describing the price rise.

But Erin was only a tropical storm, with wind speeds of only about 40 miles an hour.

Erin was then downgraded to a tropical depression Thursday, and oil prices promptly sank more than $2 to just under $71 a barrel, a drop of about 3.5 percent. The decline was due not just to the storm’s downgrade but also to concerns that problems in the credit market will dent the broader economy, crimping demand for oil.

Still, the next storm, Hurricane Dean, is just entering the Caribbean and may threaten Gulf oil operations early next week.

What got everyone so jumpy Wednesday was Erin was the first named storm that threatened the Gulf of Mexico in a year that is projected to see more storms than normal.

The National Weather Weather Service is expecting 13 to 15 named storms this year (a named storm has wind speed over 39 miles per hour), with 7 to 9 of those becoming hurricanes – defined as storms with wind speeds 74 miles an hour of higher.

CNN Money