With oil and natural gas production ramping back up offshore following Hurricane Ike’s visit last week, energy futures prices were headed lower Tuesday — albeit at much different paces. While October natural gas dropped 1.3%, or 9.5 cents, to $7.279, October crude shaved 4.8%, or $4.56, to close at $91.15/bbl.

“It makes perfect sense that the rate of declines in energy values are not lining up,” noted an East Coast broker. “When crude really began to climb back in February, values practically blasted off, setting a new record high almost every session. Meanwhile, natural gas futures, which also rose, took a little more time and stayed within ‘reasonable’ parameters. So it only makes sense that the commodities would follow those same guidelines on the way down. The interesting thing will be to see if crude gets hung up in this $80 to $100/bbl area, like it did from mid-September 2007 through mid-February 2008 when it was on its way up. As for natural gas futures, support just above $7 continues to hold.”

Talk on Tuesday amongst traders was still centered on the Gulf of Mexico’s recovery as well as the downfall of Lehman Brothers (see related story; Daily GPI, Sept. 16). “I really don’t think the Lehman implosion or the acquisition of Merrill Lynch by Bank of America are impacting the energy markets…at least that we have seen so far,” said a New York trader.

Citi Futures Perspective analyst Tim Evans sees a quick return of production from the Gulf of Mexico (see related story). “The decline [in natural gas futures] reflects a view we share, that the longer-term impact on production will not be material,” he said. “Our guess is that 80% of the 7.4 Bcf/d in natural gas production from the Gulf of Mexico as a whole will be back on-line within the next two weeks or so, with perhaps 1.5 Bcf/d lost for a longer period. In some cases, as with the platforms destroyed by Katrina and Rita in 2005, it may not make economic sense to replace every platform wrecked by the storm.”

Taking an early peek at the Energy Information Administration’s natural gas storage report for the week ended Sept. 12, Evans said his early estimate is for a 63 Bcf injection, which would equal the build recorded during the corresponding week last year, but would fall below the five-year average injection for the week of 87 Bcf.

While the tropics are currently tranquil, some forecasters warn that the 2008 Atlantic hurricane season is far from over. “The current state of the tropics resembles a rattlesnake resting in the warm sunlight. There is no problem as long as you don’t disturb the reptile,” noted John Kocet, a senior meteorologist with AccuWeather.com. “As long as there is nothing to jostle things around in the tropics, storms don’t form. That’s what we see right now: an animal quite capable of inflicting pain, but without reason to do so. Later in September and early October we do expect the tropical Atlantic to become riled again, and there is a good chance we will see more storm activity. This is quite normal, though. During most hurricane seasons, the amount of activity ebbs and flows.”

Traders are looking for a quick restart of Gulf of Mexico (GOM) production and see a market locked in a trading range. “Although more than 90% of offshore GOM production remains shut in as of Monday, the outlook appears favorable for a steady resumption of output now that both Gustav and Ike have passed without doing major damage to the offshore drilling infrastructure,” said Jim Ritterbusch of Ritterbusch and Associates.

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