June natural gas is set to open 2 cents lower Wednesday morning at $2.88 as traders eye hefty triple-digit increases in natural gas storage but at the same time recognize a deeply oversold market. Overnight oil markets rose.

Tim Evans of Citi Futures Perspective is looking for a plump build in this week’s inventory report, 135 Bcf, and following that a continuation of triple-digit builds build. By May 29 the current 67 Bcf five-year deficit turns to a 90 Bcf surplus, under his scenario.

Normally a falling deficit or rising surplus means declining prices over the intermediate term. “However, as has been demonstrated over the past two weeks, it may only be reducing the upside potential rather than keeping an absolute cap on valuations. In particular, after some 14 months of falling prices and a year long bearish storage trend, we think the market had been oversold, and at least arguably undervalued.”

Evans is keeping a sharp eye out for a slowing in production growth in Short Term Energy Outlook reports. “The DOE does have production topping out at just over 75 Bcf/d this year, not much above either the 74.57 Bcf/d estimate for April or the peak in dry gas production of 74.69 Bcf/d set in December.

“On the demand side of the market, we continue to see power sector demand as a potential bullish storyline, with the retirement of some coal-fired plants and reduced hydroelectrical potential in the far West cutting down on the competition in the sector. We see potential for summer demand to run 3-5 Bcf per day higher than a year ago, even with relatively normal temperatures.”

Gas buyers in Texas focused on power generation will be juggling a healthy dose of renewables generation for Wednesday’s purchases. Forecaster WSI Corp. in its morning report forecast that “An upper level disturbance will lead to the development of areas of heavy rain and thunderstorms [Wednesday] into tonight. It will trend more humid, but remain on the cooler side of average with highs in the 70s to mid 80s. A warm and humid southerly flow is expected during the end of the week into the weekend, though this may result in a daily chance of scattered showers and storms. Storms may be locally strong. This active pattern may lead to additional rainfall amounts in excess of 1-3”, which may lead to flooding.

“Modest wind generation is expected today into most of Thursday with output ranging 4-7 GW. A variable south-southwest flow may develop during the remainder of the week into the start of the weekend. [ERCOT] Output may occasionally top out in excess of 8 GW. Wind gen may relax during Sunday.”

In overnight Globex trading June crude oil rose 68 cents to $61.43/bbl and June RBOB gasoline gained fractionally to $2.0429/gallon.