Aug. 20 (Bloomberg) -- Natural gas in New York fell the most in more than four years on forecasts Hurricane Dean will probably miss the oil and gas production regions of the Gulf of Mexico.

The bulk of U.S. offshore oil and gas production in the Gulf is off the coast of Louisiana, between Texas and Mississippi, and about half of the nation's oil-refining capacity is in states bordering the Gulf.

``The proverbial rug was ripped out from under the market'' after forecasters said Dean would go further south, said Carl Neill, an analyst for Risk Management Inc. in Chicago. ``Too many speculators were piling in on something they really don't understand.''

Gas for September delivery fell as much as 99.9 cents, or 14 percent, to $6.011 per million British thermal units and settled at $6.04 at 3:09 p.m. on the New York Mercantile Exchange. That's the biggest one-day decline since the price fell 18 percent on Feb. 27, 2003.

``The market is selling off some of that fear and anxiety that had been keeping the market close to $7,'' said Kent Bayazitoglu, an analyst for Houston-based Gelber & Associates.

Today's drop underscores the fundamental bearishness in the gas market amid near-record inventories and only a few weeks of the summer cooling season left, analysts say.

``The primary drivers of demand, namely industry and weather-related demand, are pretty weak at the moment,'' said Ben Dell, an analyst at Sanford Bernstein & Co. ``The industrial segment of gas constitutes a third of all gas consumption, and the industrial demand arguably seems pretty weak this year already.''

Ample Inventory

Large stockpiles may serve to drive prices lower. An Energy Department report last week showed U.S. inventories increased 21 billion cubic feet the week ended Aug. 10 to 2.9 trillion cubic feet, leaving supplies 15 percent above the five-year average for this time of year and moving toward the record 3.461 trillion cubic feet established last October.

``My goodness, we're going to have plenty of gas,'' said Ron Perry, president of Commercial Energy of Montana, which sells natural gas in Montana and California. ``At these prices we're back to a more normalized price deck.''

Non-commercial short-interest positions in gas futures outnumbered long positions by 60,502 as of Aug. 14, according to the Commodities Futures Trading Commission. Short trades are bets prices will fall, while long trades are bets prices will advance.

Because more speculative traders are short in natural gas, any concern about the equity markets could prompt short-covering in the near-term, according to Jason Schenker, an economist at Wachovia Corp. in Charlotte, North Carolina.

``You'd likely get a spike in prices'' if larger economic concerns drove speculators to cover themselves, Schenker said. ``If the financial market spills into growth, that's bearish for natural gas.''

Storm Support

Hurricane concern is the major factor propping up gas prices at the moment, according to analysts.

The center of Dean was located about 330 miles (530 kilometers) east of Belize City at about 2 p.m. Miami time, the center said. Dean, with winds of 150 mph, is just 6 mph shy of Category 5 status, the most powerful hurricane ranking on the five-tier Saffir-Simpson scale of intensity.

Dean was heading west at about 21 mph. The center of the storm is forecast to make landfall on the Yucatan Peninsula early tomorrow, the center said.

``If we don't have any powerful storms and nothing drastically changes as far as the forecast, I'd look for them to want to test at $5.74,'' said Brad Florer, a trader at Kottke Associates Inc. in Louisville, Kentucky.

To contact the reporter on this story: Amy Strahan in Houston at astrahan@bloomberg.net

Last Updated: August 20, 2007 15:21 EDT