Crude oil prices closed below $70 per barrel Tuesday, as Hurricane Dean weakened from Category 3 to Category 1, making it appear that the storm will have no lasting effect on Gulf of Mexico oil production.
Gasoline and natural gas prices also extended their sharp losses, with traders betting that demand is falling and supplies are safe.
"It's good news for consumers certainly," said Tim Evans, energy analyst at Citigroup Global Markets. "There's really not much short-term support for natural gas prices in the absence of hurricane activity."
There are two more months of hurricane season left to go, though. For now, energy prices are on the decline, but if a storm comes along that disrupts the oil or natural gas production along the Gulf Coast, it could mean U.S. consumers might have to pay more to fill their car's tanks and heat their homes.
Furthermore, crude and gasoline traders are keeping an eye out for the Organization of Petroleum Exporting Countries' next move. If OPEC decides to bump up production at its next meeting on Sept. 11, that could mean even lower prices, but if it withholds production, prices could rise again.
U.S. light, sweet crude for September delivery lost $1.65 to close at $69.47 per barrel on the New York Mercantile Exchange.
Natural gas prices , which plunged more than 13 percent on Monday, declined another 21.4 cents, or 3.5 percent, to $5.826 per 1,000 cubic feet.
Heating oil futures slipped 3.14 cents to $1.9495 a gallon, and gasoline prices dropped 7.55 cents to $1.8610 a gallon.
"There's a vacuum of buying," said Tom Kloza of the Oil Price Information Service. "Now you're testing the limits of how long we can go on a short-term basis."
Wholesale gasoline prices in some areas have dropped 20 cents a gallon over the past two days, Kloza noted, which could mean much lower pump prices for drivers if the losses hold.
"To see 20 cents down on gasoline in a two-day period _ that's pretty much unprecedented," Kloza said.
Roadside gasoline prices have yet to follow gasoline futures down, though. In fact, the average U.S. retail price of a gallon of unleaded, regular gasoline rose about a cent Tuesday to $2.777 a gallon from Monday. That's still 20 cents lower than a month ago.
In addition to hurricanes, energy traders are also closely following the stock market's moves.
Wall Street's plunge appears to have been stanched for now, following the Federal Reserve's discount rate cut that made it cheaper for commercial banks to borrow from the central bank. But trading has been choppy, reflecting ongoing credit worries.
Because of the rocky stock market, the energy market is betting that energy demand will keep declining, especially as the driving season ends. Also causing energy prices to drop, speculators -- those looking to make fast money, as opposed to commercial investors who use the market to hedge their interests -- have exited their positions to free up cash.
On Monday, Hurricane Dean strengthened to a Category 5 storm night as its rains and winds slammed the coasts of Mexico and Belize, and a few companies evacuated some rigs and suspended production. But by later Tuesday, Dean had been downgraded to a Category 1 storm.
Mexico's state oil company, Petroleos de Mexico abandoned its offshore oil rigs just ahead of Hurricane Dean, evacuating more than 18,000 workers and shutting down production in its main oil-producing region. The temporary closure will mean a production loss of 2.7 million barrels of oil and 2.6 billion cubic feet of natural gas a day, the company said. Of that, about 1.7 million barrels of oil a day is exported from three Gulf ports, where Pemex loaded the final tankers on Monday.
But Evans said that with Dean's wind speeds dropping to 105 miles per hour, it's highly unlikely that the region's oil production will suffer any long-term disruptions.
In May, about 50 million barrels, or 11 percent, of the 439 million barrels of crude oil and oil products the United States imported from other countries came from Mexico.
The U.S. Minerals Management services said Monday that Dean led U.S. energy producers in the Gulf to evacuate 10 of the 834 manned platforms in the region, and to temporarily suspend about 3.2 percent of the Gulf's usual daily crude production and 1.3 percent of its normal natural gas production.