After rallying to new 15-month highs Monday on renewed hurricane-hype, natural gas futures reversed lower Tuesday on reports from the National Hurricane Center that Isidore will only be able to reach category 1 hurricane status when it slams into the central Gulf Coast late Wednesday or Thursday. That selling was enough to pressure the October contract down to a new one-week low at $3.71. The prompt month closed a few pennies above that level at $3.742, down 23.6 cents for the session.

After spending about 36 hours moving erratically over the Yucatan Peninsula, Isidore reemerged Tuesday morning over the warm waters of the Gulf of Mexico. Several traders contacted by NGI were a little surprised by the depth of the correction Tuesday, which came at a time when Isidore was intensifying. On Monday, the futures market had soared while the storm was losing strength over land.

As of press time last night, Isidore was still a tropical storm with sustained gusts of 60 mph, according to the National Hurricane Center. The storm was tracking in a northward direction at 7 mph and was expected to barely strengthen into a category 1 hurricane by the time it reaches land along the Louisiana coast. A category 1 hurricane packs maximum sustained winds between 74 and 95 mph.

However, private forecaster Weather 2000 of New York expects more of Isidore. “We believe the NHC and other forecast services are underestimating the rebounding potential of Isidore, with the NHC official forecast having Isidore barely nudge above Hurricane Status prior to landfall,” the group wrote in a note to customers Tuesday afternoon. “To the contrary, our research and analyses suggest that there are favorable conditions for, and decent chances that Isidore could reach/exceed 95-100 mph (Category 2 threshold) prior to, or during landfall.”

For Kyle Cooper of Salomon Smith Barney in Houston, the speed at which the storm was expected to move Tuesday was a bearish factor because it not only gives the storm less time to strengthen, but also minimizes the duration of production curtailments. “Current models predict only a category 1 or 2 hurricane by landfall. With lower winds, the probability of infrastructure damage is certainly reduced,” he wrote in a note to customers Tuesday.

And while it may not cause damage to offshore production assets, Isidore’s presence is already being felt. Tuesday afternoon the Minerals Management Service (MMS) said total production shut-ins reached 1.42 Bcf/d of gas and 155,000 bbl/d of oil. The MMS said its 3.2 Bcf/d gas curtailment total for Monday (reported by NGI yesterday) was incorrect and should have been only 983 MMcf/d. However, MMS’s total for Tuesday also appears to be far short of actual production curtailments given that a handful of pipelines were reporting more than 1.8 Bcf/d of shut-in production (see related story this issue). In short, it may take several days to get accurate actual numbers on the situation in the Gulf of Mexico.

And while the path, intensity, and timing of the storm, along with the amount of shut-in production will ultimately dictate the market’s price direction, technical considerations may have the last say when it comes to the size of the price move. Take Monday for example. Boosted by hurricane hype, the October contract ran to $3.99, which is the confluence of psychological support at $4.00 and the top of the recent uptrend channel. Now that the market is well below that top, Ed Kennedy of Pioneer Futures in Miami sees the possibility of further weakness down to the bottom of that channel. “I think we could see more weakness and look for a move down to support in the $3.65-67 area. If we hold there, then I might be a buyer,” he said.

Looking ahead to storage data set to be released Thursday morning, Cooper calls for an injection between 67 and 77 Bcf, which will be on the low end of historical comparisons. Last year of the Energy Information Administration estimated a 93 Bcf refill and the five-year build averages 73 Bcf. “Despite what may be supply disruption due to Isidore, storage levels are still projected to exceed 3,200 Bcf by Oct. 31,” Cooper added.

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