As subtle changes to Hurricane Rita’s path helped calm some traders’ nerves, October natural gas futures relaxed ever so slightly in trading on Tuesday. Following the enormous $1.519 run-up on Monday, the prompt month a day later ended up settling at $12.492, down 17.1 cents on the day.

Reports on Tuesday that Category Two Hurricane Rita, while still presenting a serious risk, was looking like less and less of a direct hit in the areas ravaged by Katrina helped natural gas futures explore somewhat lower, taking back some of Monday’s record-setting gains. After notching its low of the day at $12.12 in morning trade, October natural gas bounced around for the remainder of the session Tuesday as forecasts and expectations on Rita’s path and reports of platform evacuations continued to hit the street (see related story).

The petroleum futures complex also reported losses Tuesday. October crude closed at $66.23/bbl, down $1.16 from Monday. October unleaded gasoline and October heating oil finished lower by 6.61 cents and 2.71 cents, respectively, to settle at $1.9766/gallon and $2.0113/gallon.

“I think this natural gas futures market still has a lot of bullish characteristics. Monday’s jump up was certainly massive and on par with the Hurricane Katrina move, so was it an over-exaggeration? I don’t know,” a Washington, DC-based broker said. “Rita has the potential to be just as bad as Katrina was for infrastructure. It’s like we got our right arm broken and now they are coming after our left arm in the Western Gulf, which has a lot of natural gas rigs in it. So I wouldn’t necessarily say Monday’s move higher was an exaggeration because under the worst possible Rita scenario, $15 gas is not out of range.”

The broker pointed out that because the exact path is still unknown, any fluctuations are likely to cause price swings. “What we saw Tuesday morning is that one wobble north, one wobble south, an intensification or a weakening is going to affect the market greatly,” he said. “If Rita tilts to the north towards the Houston to Port Arthur area, prices will take off. If it aims more towards the coastline in between Houston and Corpus Christi, then it will ease off. Unfortunately, it is likely going to be this way for the next couple of days because I don’t see anyone with the willingness to go out and call the storm a nothing.

“The sentiment in the futures market Tuesday seemed to be, ‘We jacked up the price X amount on Monday, now Rita doesn’t look quite as dire, lets take off half of X.’ Why? because it is half. I don’t know that there is any sort of scientific calculation about the amount of gas that is likely to be shut in equals this amount of money, therefore I need to buy or sell so many futures contracts. I can’t say nobody is doing that, but I would find that hard to believe. I just think it is trading on a lot of emotion. We were very active buyers all day for end-user clients. These people were buying some of the biggest size they have been buying in awhile.”

The broker said he believes people have seen what Katrina did and have seen that prices have not come off from Katrina. “They now understand that the problems from these storms will probably be with us for several months and may well impact winter month pricing. For the rest of the week, we are likely to have these very choppy days depending on the news flow.”

Traders are expecting further lost gas production. “The intensity and eventual track of Rita will be key. The current projected path will likely curtail nearly 100% of Gulf of Mexico production for at least a short time,” said Kyle Cooper of Citigroup. He noted that Mother Nature has been, and remains an incredible bull. Until she changes, do not be short this market. “However, Mother Nature is fickle,” he cautioned.

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