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August 29, 2008

Warm Waters in Gulf of Mexico. Cat-in-a-Box Coverage, etc.

We keep hearing about warm waters in the Gulf of Mexico fueling the rise of Cat 3 hurricane strength from tropical storm Gustav, but just what does that mean? Well, studies generally suggest hurricanes require water temperatures over 26 C to grow in strength, and one major recent study found that every 0.5 degree C higher water temperature is associated with a 40% increase in hurricane activity and frequency.

So, with the preceding in mind, consider this figure from earlier today in the region showing current water surface temperatures in the Gulf. In essence, once you cross between Cuba and the Yucatan, you’re in 30 C water temps – and higher – all the way to the Gulf coast.

 

Compare this image to the Gulf surface water temperatures three years ago at this time during Hurricane Katrina. You can see that central Gulf water temperatures are warmer now, but the temperatures closer to the Gulf coast are marginally cooler. You can see that the Gulf waters were generally warmer than today, although the likely Gustav path through the central Gulf is sporting temperatures fairly similar to what we saw then. It’s all relative, of course, with temps mostly exceeding 30 C. (For you keensters curious to see what Gulf water temps looked like after Katrina stirred the waters, check here.)

  

[via Johns Hopkins University, Ocean Remote Sensing Group]

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As a semi-related aside, the stocks to watch in here are less the oil companies than the cat insurers. Companies like AIG, Zurich, Swiss Re, etc. have all changed policies and models since Katrina. They have upped rates, and capped coverage at $500-million per incident per company, well below the $1-billion cost of replacing a rig. Some intrepid sorts have even launched nifty new “cat-in-a-box” coverage, where you can buy coverage for a single looming storm. As morbid as it might sound, this event could be good new for the group.

More here.

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