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Weather Outlooks Continue to Disappoint; July Called a Penny Lower

July natural gas is set to open a penny lower Wednesday morning at $2.96 as traders see a deflating weather environment ahead of a storage report expected to show above-average storage builds. Overnight oil markets retreated.

Weather forecasters continue to call for moderation going forward. "Overall, next week is still favored to verify cooler than the current week across the Midwest and East thanks to a strong shift of bigger heat into the Western U.S," said Matt Rogers, president of Commodity Weather Group.

"However, there are definitely model differences regarding timing of cool fronts and daily temperature details for the Midwest and East that inch confidence slightly lower today. The West becomes the big heat target next week and we edge California and the Southwest slightly hotter compared to yesterday (Pacific Northwest slightly cooler). Interior Texas is also a hotter spot as we raise Dallas temperatures middle to late next week again."

Not only have weather forecasts not lived up to expectations, but analysts note power usage at less than anticipated levels.

"Heading into this week the natural gas and power markets were filled with anticipation as the first real heat wave was set to hit the US," said Jeff Richter, principal with EnergyGPS, a Portland, OR-based energy and consulting firm. "As a result, the market had high expectations for gas demand with the consensus calling for power burns to settle in the low to mid 30's (Bcf) for Monday and Tuesday. Fast forward to today, we reflect back on the past two days as the heat came but the power burn numbers were rather disappointing as both Monday and Tuesday averaged just 30 Bcf."

Tim Evans of Citi Futures Perspective calculates a 91 Bcf injection for Thursday's Energy Information Administration (EIA) storage report, about in line with industry expectations of 85 to 90 Bcf. His figures show the year-on-five-year surplus, currently at 237 Bcf, shrinking to 194 Bcf by June 30.

Last year 68 Bcf were injected and the five-year average comes in at 87 Bcf.  The Desk Early View storage survey of 12 industry cognoscenti revealed an average 85 Bcf with a range of 80 Bcf to 94 Bcf.

In overnight Globex trading July crude oil fell 36 cents to $46.10/bbl and July RBOB gasoline shed a penny to $1.4859/gal.

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