By Michael Barak and Joe Bastardi

All eyes are on Tropical Storm Isaac as it gains strength in the Caribbean.  The storms current trajectory will guarantee landfall on the United States coastline.  The difficult forecast that needs to be made is where exactly the storm will hit and with what magnitude.

The main divergence in computer model generated tracks occurs after the storm passes over Cuba. The European computer model, which generally outperforms the other forecast models, has been generating the western-most path for the storm.  This track would be by far the most intense, taking the storm over the very warm loop current in the Gulf of Mexico.  Eventually the storm would make landfall as a major hurricane along the Northern Gulf Coast, a scenario that could rival Hurricane Katrina and be a major disruption to energy concerns.

The US generated GFS model, which was in line with other model consensus,had been generating a track through the Florida straights and into mainland Florida.  However, these models have all shifted west toward the open waters of the Gulf of Mexico.  While a track closer to Florida’s gulf coast will not be as strong, the result will still have far reaching impacts on insurance and citrus concerns, as well as the Republican National Convention.

There is a tremendous amount of ocean heat content in front of Isaac so anytime spent over water will result in rapid strengthening.

The spread of forecasts tracks can be seen in the following spaghetti plots off of

The further west the storm tracks, the higher the probability that Isaac will impact oil and gas production in the Gulf.   The 12PM computer model updates will have key implication for energy interests, as they will provide the last track guidance for energy traders prior to markets closing for the weekend.

A track further east that hugs that Florida’s gulf coast could damage the citrus growing regions.  The citrus market rallied when news of a potential Florida hit was made public.  However, if a more western track is forecasted later today, citrus prices could decline as fears of crop damage would be mitigated.

Insurance companies along the Gulf Coast are also watching Tropical Storm Isaac closely.  The insurance companies with the largest market share along the Alabama/Louisiana Gulf Coast as well as the Florida are State Farm and Allstate.  Alfa Mutual Group owns a significant exposure in Alabama.  Universe Insurance Holdings has significant exposure in Florida.  History tells us that insurance company stocks can trade lower as a major hurricane approaches landfall.

Because TS Isaac is quite large and has the potential to intensify into a major hurricane, all industries exposed to a major landfall should monitor the latest track and intensity guidance carefully.