With Hurricane Gustav now in the rear-view mirror and tropical storms Hanna, Ike and Josephine all currently expected to steer clear of the Gulf of Mexico, energy futures across the board let off some steam on Tuesday. October natural gas spiraled 68.2 cents lower to close at $7.261/MMBtu while October crude dropped $5.75 to finish at $109.71/bbl.

“Gustav left everything intact in the Gulf, so any fear premium that was attached to that storm is now gone,” said Steve Blair, a broker with Rafferty Technical Research in New York. “As for trading over the weekend, I was a little surprised that Nymex decided to trade on Sunday because of the Gustav situation. They really did not do a good job of notification because they waited till late Friday to send out the memo.”

Blair noted that it appears the energy industry will repopulate Gulf infrastructure rather quickly this time (see related stories). “Some of the companies were reporting that operations would be back on as soon as Wednesday, which is not going to help the cause of energy bulls. And with Hanna and Ike heading toward the East Coast, there really is nothing to support a run higher right now.”

While Hanna was downgraded from a hurricane to a tropical storm on Tuesday morning, forecasters expected the demotion to be only temporary. AccuWeather.com said Tropical Storm Hanna would regain hurricane strength before reaching the East Coast by Friday. AccuWeather.com meteorologist Rob Miller said Hanna has been battling wind shear as it drifts erratically over the southwestern Bahamas, about 370 miles southeast of Nassau. John Kocet, an expert senior meteorologist for the forecasting firm, said Hanna “appears to have all the characteristics of a classic East Coast hurricane, similar to Hurricane Floyd in 1999.”

Regarding Ike and Josephine, AccuWeather.com warned that both storms would likely intensify over the next few days, with Ike forecast to pass close to or over the Leeward Islands on Friday with Florida feeling the storm’s effects sometime Sunday.

Looking at price levels, Blair said he sees “some pretty good support” down in the $7 to $7.200 area. “I think that was shown Tuesday when we got down to $7.212, but I expected we would see a ‘dead-cat bounce’ up into the low to mid $7.40s. That did not materialize; we got into the low $7.30s before moving on to close out the regular session.”

Blair said he also expects another big storage injection reported this week. “We did not have a very hot week in the Northeast last week and overall we had a very mild August. I haven’t heard any storage projections being thrown around yet this week, but I would not be surprised to get another big number. Another big number would likely be enough to push us below $7, if we haven’t already done it by Thursday morning.”

Some traders are looking at Gustav-driven shut-ins as speed bumps on the way to an oversupplied market. “Despite the fact that practically all offshore gas drilling activity has been shut in as a result of Gustav, the market is discounting the fact that these output losses will prove temporary and are relatively small within the context of an exceptionally strong pace of onshore production this year,” said Jim Ritterbusch of Ritterbusch and Associates. In his view supply losses are little more than a “necessary development in balancing what is quickly becoming an oversupplied market.”

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