Energy traders were blindsided Friday as the surging prices across the board on Thursday transformed into even larger losses to finish the week. After a two-day stay north of $8, September natural gas futures plunged below the psychological support level, recording a new low for the down move of $7.768 before closing at $7.843, down 40.9 cents on the day and 24.9 cents lower than the previous week’s finish.

After following petroleum futures higher on Thursday, weakness in petroleum futures Friday was listed as the main driver for slumping natural gas values, according to energy market experts. After October crude gained $5.62 and September heating oil tacked on an astounding 13.71 cents on Thursday, both fuels on Friday gave the gains back with interest. October crude Friday dropped $6.59 to close at $114.59/bbl and September heating oil declined by 16.95 cents to finish at $3.1311/gal.

“There is no other word than ‘crazy’ to describe the last two days of trading,” said a Washington, DC-based broker. “On Thursday everything was starting to look long as crude and natural gas both broke out and buy signals developed, but as we look back, it appears the market on Friday basically said ‘never mind, just kidding.'”

The broker said a few bearish things for energy occurred Friday. She noted that Tropical Storm Fay looked like it was going to mostly spare the Gulf of Mexico; Federal Reserve Chairman Ben Bernanke said he believes inflation might be easing and the dollar looked like it is continuing to strengthen. “In addition, it appears the tension between the Russians and the Georgians is being ratcheted back a few notches,” the broker said. “All of this is taking some steam out of the petroleum complex and natural gas has been happy to follow recently.”

Addressing the tropics, she said she really is not seeing much on the storm front. “It seems fairly quiet out there. It looks like Fay is just going to nip the Gulf…and by looking at the trade you can tell no one really cares. As for temperatures, fall weather will be here soon and the South looks like it is going to be below normal, which is the area where most people normally run their air conditioners for an extended period.”

After beating up on Florida with high winds and heavy rains for the last five days, Fay looks like it will take its assault to much of the rest of the Deep South this week with hard rains that could spark flooding in the Gulf Coast states, according to AccuWeather.com.

With Fay mostly avoiding the Gulf, most traders are already looking at a few waves that are a little farther out. “One wave will be approaching the Lesser Antilles, bringing at the very least an increase in shower and thunderstorm activity across these islands, as well as Puerto Rico from [Friday] into this weekend,” AccuWeather.com meteorologist Bob Tarr said Friday. “A second tropical wave, this one with a weak area of low pressure at the surface, is moving about halfway between the Lesser Antilles and Cape Verde Islands. Yet another recently emerged off the west coast of Africa. While these waves are not showing any signs of immediate development, we’re right in the heart of the Atlantic tropical season, so these need to be watched carefully in coming days.”

Looking at the current price dynamics, the broker said there might be some room left to the downside yet. “Trading on Thursday quickly relieved some of the oversold condition,” she said. “If global tensions continue to calm and the tropics remain quiet, we could start the new week pressing for yet lower lows.”

Agreeing with Tarr, Citi Futures Perspective analyst Tim Evans said the numerous waves on radar are important, not only for where they might go, but also because the sheer number of them highlights the fact that the season is reaching its peak of activity, so traders need to be prepared.

“The natural gas market is digesting Thursday’s gains and assessing the lineup of tropical waves in the Atlantic. At the moment, 94L and 95L are poorly organized and look as though they may not track to the Gulf of Mexico, but they do serve as a reminder that tropical activity is still on the upswing seasonally,” Evans said Friday morning. “The temperature outlook still appears consistent with above-average storage injections for the next few weeks. The larger, or at least more reliable, upside potential here might be seasonal buying or speculative short-covering ahead of the winter.”

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