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Bulls Regroup After Monday's Losses; August Called A Penny Higher

August natural gas is set to open a penny higher Wednesday morning at $2.96 as the market resets following Monday's weather-driven pummeling and traders begin to focus on modest near-term cooling. Overnight oil markets fell.

Forecasters are calling for a cooling trend which started with Monday's model runs and prompted an 8 cent August futures adjustment. "[Wednesday's] six to 10 day period forecast is cooler than yesterday's forecast across the northern US and warmer across the southern states, as well as the Pacific Northwest," said WSI Corp. in it morning report to clients.

Continental United States (CONUS) population-weighted cooling degree days “are down 0.7 to 61.4 for the period, which are 6.5 above normal. Forecast confidence is only near average today as medium range models have been somewhat inconsistent with the details, but are in moderate agreement with the evolution of the large scale pattern over the CONUS."

Analysts have adjusted their storage figures accordingly. Tim Evans of Citi Futures Perspective had calculated a 118 Bcf year-on-five-year storage surplus by July 21, but the revised weather outlooks prompted an adjustment to 130 Bcf. 

The broader decline in the year-on-five-year surplus "normally translates into rising prices over the intermediate term," said Evans.

"In time we think this will lift prices to test failed technical support in the $3.25 area or revisit the may high for August futures at $3.50 if warmer than normal readings persist."

Evans is looking for a build of 68 Bcf in Friday's storage report, delayed one day by the holiday.

In its Early View survey of storage expectations The Desk sampled 14 traders and analysts and the average came in at 63 Bcf, greater than last year's 38 Bcf and about in line with the five-year average of 66 Bcf.

The range on the survey was from 52 Bcf to 70 Bcf.

In overnight Globex trading August crude oil dropped 59 cents to $46.48/bbl and August RBOB gasoline fell 2 cents to $1.5190/gal.

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