Subscriber Bulletin: Hurricane Harvey and the Economy

  • by itradmin - Mon, 09/04/2017 - 16:03

First and foremost, our thoughts and prayers go out to those impacted by Hurricane Harvey. The devastation was considerable.

Turning to business, our focus now is to assess Harvey’s economic impact. We started that analysis over the weekend and it continues today. While the amount of rainfall was without precedent, there are precedents to look at in order to assess the potential economic damage. Hurricane Katrina in August 2005 is the most recent parallel (the geography of Hurricane Sandy makes that storm less relevant).

The bottom line of our analysis thus far is that there will be short-term distortion to the prior existing trends for oil and natural gas, but there is no evidence of a prolonged change to the pricing trends. What we can assume based on Katrina is that the price shock stemming from Harvey will last two to five months, with the most significant pricing changes occurring in months one and two. Fortunately for energy consumers, the US was in an excess inventory situation before Harvey. This excess inventory will help mitigate pricing issues. But this is economics and nothing is ever that simple. Oil futures were already in a cyclical rising trend before Harvey hit; we were likely going to see fourth-quarter-2017 price rise even without Harvey. So we have cyclical factors and natural phenomenon at work, pushing oil prices higher through the end of this year. Unlike oil, natural gas prices were in a slowing growth trend (Phase C) before Harvey, but that trend will likely be turned around for added short-term rise.

We will look at Harvey’s impact on construction and GDP in the ITR Trends Report™ Executive Summary that will be released Friday, September 8.

Brian Beaulieu