July natural gas is set to open 3 cents higher Thursday morning at $4.67 as traders speculate that even the stout injection expected in the morning government storage report as well as succeeding increases may not be enough to prepare for the winter. Overnight oil markets slumped.

May is typically the month for the largest storage injections and the 10:30 a.m. EDT Energy Information Administration inventory report for the week ending May 30 is not likely to disappoint. Estimates are coming in just a hair above last week’s stout 114 Bcf build and well ahead of last year’s 108 Bcf injection and a five-year pace of 93 Bcf.

Some question whether these hefty increases are really necessary to bring storage to a satisfactory level by the end of October. “[G]iven that we started the season so far behind the curve, ‘blowing out’ the 2013 numbers and the five-year norms may not be good enough,” said John Sodergreen, editor of Energy Metro Desk. In the past four weeks we injected 399 Bcf of gas, compared to 357 Bcf last year and 337 Bcf for the five-year average. The trend needs to continue; if we only manage average levels for the balance of the season, we’ll begin the heating season with roughly 3 Tcf in the till. That ain’t huge. But, nor is it anything to freak out about. We had hoped to speak to EIA leadership about this little matter about perception in the coming weeks.”

Utilities aren’t concerned about adequate storage? “Last time we checked, most utilities aren’t even a little bit concerned about starting the heating season with such low inventory levels. For that matter, producers aren’t so worried either. How can this be? Simple, production is expected to surprise, yet again. That being the case, maybe we should rethink appropriate storage levels,” Sodergreen hypothesized.

“Given the robust production picture, is a 3.0 or 3.5 TCF end of season tally good enough? Are we using the wrong yardstick? We’re thinking that yes, we are. We think this should be the basis for some new market analysis, and quick. Anybody willing to pick up the task and run with it? From what we can see, futures prices may be based on some fairly flawed fundamentals, like, ‘needed end of season fill levels.'”

Most estimates of the report center around a 115+ Bcf storage injection. United ICAP calculates a 118 Bcf increase and a Reuters poll of 24 traders and analysts revealed an average 116 Bcf with a range of 107 Bcf to 125 Bcf. Industry consultant Bentek Energy utilizing its flow model is looking for a build of 115 Bcf.

The National Weather Service (NWS) in its 8 a.m. report noted further development of a system of showers and thunderstorms in the southern Bay of Campeche. “Despite strong upper-level winds, some further development of this system is possible over the next day or two if the low remains offshore of eastern Mexico,” NWS said. It raised the probability of storm formation to 30% over both the next 48 hours and next 5 days.

Meteorologists see most of the action taking place next week. “It appears more of the system is getting into the extreme southern Gulf where water temperatures are warm enough to support development,” said meteorologist Joe Bastardi in a morning report. “I got kind of excited yesterday when the ECMWF [European model] actually showed this developing and coming northward in the kind of fashion that I think we would see at this time of year, but it has backed off again. Even the GFS [Global Forecast System] has backed off. My take is we will have this to deal with next week, after it sits and stews in the southern Gulf through the weekend, but until I can see an actual low level center taking shape, this is speculative. I think any storm is liable to be heavily east-side weighted, and it is at least 5 and probably more like 7 days away from any impact in the northern Gulf.”

In overnight Globex trading July crude oil fell 38 cents to $102.26/bbl and July RBOB gasoline shed a half cent to $2.9279/gallon.