Dolly was promoted from a tropical storm to a full-fledged hurricane late Tuesday afternoon and precautionary measures — including shut-ins — continued during the day at exploration and production infrastructure off the lower Texas coast. But the markets were affirming a general belief that barring an unlikely turn to the north, the storm will have minimal impact on offshore operations. Cash gas fell at all points, accompanied by a futures plunge.

The growing perception of little storm threat to production combined with forecasts of receding cooling load Wednesday in the Northeast and South to depress physical prices. Monday’s 6-cent decline by August futures also was a factor.

Tuesday’s losses ranged from a little less than a nickel to about a dollar. They tended to be largest at Northeast citygates and smallest in the Rockies, where continuing high temperatures in the 90s and 100s in the Rockies, desert Southwest and interior California assured that power generation load would remain strong.

As of Tuesday afternoon the National Hurricane Center (NHC) was projecting that Dolly would come ashore around midday Wednesday at the U.S.-Mexican border. That represented a modestly bearish change from the previously expected landfall slightly to the north of Brownsville at the southern tip of Texas.

Minerals Management Service (MMS) said 21 companies had reported production cuts of 395 MMcf/d of gas and 60,621 b/d of oil related to Dolly by 11:30 a.m. CDT Tuesday. The companies said six mobile drilling rigs and 49 platforms had been evacuated, according to MMS. The shut-ins represented about 5.13% of the Gulf’s estimated 7.7 Bcf/d of gas output as of January 2008 and about 4.66% of its estimated 1.3 million b/d of oil production, MMS said. The agency is posting Dolly statistics on its website each day around 1 p.m. CDT.

Cash and futures traders were in bearish moods Tuesday despite the presence of a near-hurricane in the GOM. A Gulf Coast producer said prices had started higher initially but by mid-morning were down about 40 cents or so. And the prompt-month natural gas and crude oil futures contracts had plunged by 44.3 cents and a little more than $3/bbl, respectively, by the end of the day.

Although it will still be hot Wednesday from the Southeast through the Midcontinent and the lower half of the West, the South’s highs will be dropping by about three to 10 degrees depending on the location. Heat reductions will be on a similar scale in the Northeast, but whereas much of the South will still reach the 90s, the Northeast’s peak temperatures will be more comfortable in the low to mid 80s.

The Midwest will see little change in temperatures but has already cooled off to highs in the 70s in most cities.

Transco reported a Dolly-related production loss of about 250 MMcf/d from offshore Texas.

Anadarko Petroleum started evacuating 180 employees and full-time contractors Monday night from three western Gulf of Mexico (GOM) facilities — Nansen, Boomvang and Gunnison, said spokesman John Christiansen. He added that the company had shut in about 30,000 boe/d of oil and gas production at the three platforms.

According to news reports, BP, ExxonMobil, Apache Corp., Chevron and Shell had evacuated (mostly) unspecified numbers of nonessential workers. Reuters said ExxonMobil had shut in 10,000 b/d of oil and 40 MMcf/d of gas, and Apache had cut 56 MMcf/d of gas and a “minimal amount” of oil. The other companies were not reporting any production cuts. Apache also had evacuated 140 workers, Reuters said.

With maximum sustained winds having risen to 70 mph Tuesday morning, Dolly was nearing hurricane strength (74 mph or more). However, its growing proximity to shore gave the storm only about another day or so to develop further before encountering the weakening effects of moving inland. Its winds of 75 mph by late Tuesday afternoon barely qualified Dolly as a Category One hurricane on the Saffir-Simpson Scale (www.nhc.noaa.gov/index.shtml).

NHC reported that the hurricane warning from north of Corpus Christi to Port O’Connor, TX, had been replaced with a tropical storm warning, but the hurricane warning remained in place from Brownsville to Corpus Christi. At 4 p.m. CDT Dolly’s center was about 165 miles east-southeast of Brownsville and moving toward the northwest at nearly 10 mph, which represented a modest slowing of pace.

Off the East Coast, Tropical Storm Cristobal strengthened Tuesday morning but was starting to lose tropical characteristics that afternoon and was expected to take a turn to the east that would keep it well away from landfall, NHC said. At 5 p.m. EDT the center of Cristobal was about 170 miles south-southeast of Halifax, NS, and moving northeastward at nearly 28 mph.

Obviously cash traders aren’t worried about Dolly, a Midcontinent producer said. There’s a lot of heat in his area with afternoon temperatures reaching about 100 degrees, “but people are well supplied” with gas, he added. The producer also noted that nuclear generation is at a high level, precluding the need for running many gas-fired peaking units. “Yes, I’d expect cash prices to be down further” Wednesday, he said.

The National Weather Service expects below-normal temperatures during the July 28-Aug. 1 workweek everywhere (except in Maine) east of a line running southward from eastern Wisconsin to just inside the western border of Louisiana. The agency looks for above-normal readings almost everywhere west of a line from the western end of Michigan’s Upper Peninsula through central Texas; the exceptions where normal conditions are predicted are the Four Corners area, all of Washington state, the western half of Oregon and the northwest corner of California.

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