Do Seasonal Tropical Storm Forecasts Affect Crack Spread Prices?

Authors

  • Jason Fink,

    Corresponding author
    1. Jason Fink is the Chandler/Universal Professor of Banking at James Madison University, Harrisonburg, Virginia
    • Correspondence author, James Madison University, MSC 0203, Harrisonburg, VA 22807. Tel: 540-568-8107, Fax: 540-568-3017, e-mail: finkjd@jmu.edu

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  • Kristin Fink

    1. Kristin Fink is a Professor of Finance at James Madison University, Harrisonburg, Virginia
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  • The authors would like to thank Phil Klotzbach for providing verification data for the seasonal forecasts, and an anonymous referee for valuable suggestions. We especially thank Justin Fink for excellent research assistance.

Abstract

Individual storms in the Gulf of Mexico have been shown to affect crack spread futures prices. As hurricanes strike refiner-dense areas, prices of refined petroleum products rise. We find that crack spread prices are even affected by seasonal hurricane forecasts. We find this despite the difficulties of long horizon forecasting, and that refiners are only exposed in a small portion of the Atlantic basin. These effects are economically important. For example, a one standard deviation increase in the June forecast of the net tropical cyclone activity in the upcoming season increases 3-2-1 crack spread prices by over 9%. © 2013 Wiley Periodicals, Inc. Jrl Fut Mark 34:420–433, 2014

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