July natural gas is set to open 4 cents lower Tuesday morning at $2.55 as traders factor in a supportive weather environment and an accelerating decline in the storage surplus. Overnight oil markets fell.

MDA Weather Services in its Tuesday morning six- to 10-day outlook said, “Trends were in the cooler direction along the Northern Tier from the Rockies to the Northeast, with this adjustment coming with support from model guidance for a deepened trough pressing into central Canada. Despite this feature, the large-scale pattern remains warm dominated, including a coverage of much above-normal temperatures in the Southwest.

“Aboves are also forecast to return to the East Coast by mid-period; although, some concern remains with what influence (if any) a lingering upper low along the coast may have within this period. Confidence is moderate overall.”

MDA said risks to the forecast include the “American model linger[ing], an East Coast upper level low for longer and is cooler in the Mid-Atlantic and Southeast as a result. The Southwest carries additional heat risk under a strong ridge aloft.”

Traders see a market leaning to the upside but aren’t quite willing to take a long position. “[A]lthough some moderation was seen in yesterday’s new weather models, consensus of forecasts continue to favor above-normal temperatures across the entirety of the U.S. that have been extended out to about the 27th of this month,” said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning note to clients.

“As a result, the market is forced to price in some significantly downsized injections to be released by the EIA through the rest of this month that will keep the dynamic of a narrowing surplus much intact. But we also feel that this hot start within the early stage of the summer period has forced the market to price in an unusually warm July-August period that would keep CDDs much elevated in the process of further reducing the supply overhang.

“While an argument can continue to be made that the storage surplus required reduction anyway, the rate of decline is proceeding a bit faster than previously anticipated. Add in a recent upswing in coal-to-gas substitution and production slippage that will soon be approaching 2% on a year-over-year basis and conditions appear ripe for some fresh highs by week’s end that could carry nearby futures to almost 10 cents above [Monday’s] settlement. Nonetheless, we are reluctant to initiate a buy recommendation given what we view as unfavorable risk-reward ratios.”

Tom Saal, vice president at FCStone Latin America LLC in Miami, in his work with Market Profile said he expects the market to test Monday’s value area at $2.621 to $2.599. He has identified a “failed auction” at $2.451 to $2.452 and said he expects the market to test that “in the next few days'”

In overnight Globex trading July crude oil dropped 61 cents to $48.27/bbl and July RBOB gasoline shed a penny to $1.5265/gal.