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Weather Outlook More Uncertain Than Ever; August Called A Penny Lower

August natural gas is expected to open a penny lower Wednesday morning at $2.93 as traders deal with weather forecasts showing a higher degree of variability than normal. Overnight oil markets were mixed.

Overnight weather models turned cooler, but forecasters admit to a lack of confidence in the forecast. "[Wednesday's] 11-15 day period forecast is several degrees cooler in the East when compared to yesterday's forecast," said WSI Corp. in its morning report to clients. Their calculations show continental United States population-weighted cooling degree days down 3.9 to 58.2 for the period.

WSI confessed confidence in the forecast is considered well below average standards due to abnormally high uncertainty in the models. There are both warmer and colder risks to the forecast across the Plains and East (north focused), they said. There is support for either a colder than average, or warmer than average pattern. "We are at a limit of predictability," WSI said.

Traders are beginning to turn their attention to Thursday's Energy Information Administration (EIA) storage report, and the trend of a decreasing year-on-five year storage surplus remains intact. Tim Evans of Citi Futures Perspective estimates a build of 30 Bcf, well below the five-year pace of 47 Bcf but greater than last year's 19 Bcf.

He says that this is "confirming that the market is becoming tighter on a seasonally adjusted basis, even as the storage trends higher. This is a supportive fundamental trend that normally translates into rising prices over the intermediate term."

As supportive as this may be it has only been enough "to produce sideways, choppy price action, but we continue to see potential for a test of failed technical support at $3.25 or the $3.50 area probed in mid-May."

The Desk, in its Early View estimate of the week's storage report, surveyed 11 traders and analysts, and it resulted in a 27 Bcf average. This is above last year's 19 Bcf injection but well below the five-year average of 47 Bcf. The range on the survey was from 25 Bcf to 43 Bcf.

In overnight Globex trading September crude oil gained 52 cents to $48.41/bbl and September RBOB gasoline dropped fractionally to $1.5717/gal.

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