August natural gas is expected to open 2 cents lower at $2.83 Friday morning as even though Thursday’ storage report was considered bearish, the long-term surplus suggests futures trading will be rangebound. Overnight oil markets retreated.

Analysts see the minimal storage surplus relative to the long-term averages as indicative of relatively narrow trading. “This market is maintaining a trend of showing limited price follow-through in either direction as supply and demand don’t appear significantly mismatched at the present time,” said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning report to clients.

“Although [Thursday’s] 99 Bcf injection was some 4-5 Bcf larger than expected, the supply surplus against five-year averages remains less than 75 Bcf, a comparatively small deviation from normal suggestive of a relatively narrow futures trading range. Although updates to the one- to two-week weather forecasts now appear tilted back in a bullish direction, expected deviations from normal don’t appear sufficiently extreme to sustain price advances much above this week’s highs.

“And although the market may still need to discount a sharp reduction in storage injection of as much as 30-35 Bcf per next Thursday’s EIA release, the dynamic of a surplus expansion is expected to stabilize through the rest of this month. Consequently, the market will be heavily dependent upon weather surprises such as an unexpected sustainable hot spell or a major storm event if a $3 price handle is to be re-established.

“As is the case within the liquids, natural gas production and rig counts are apt to go their separate ways. Production that has recently returned to near-record levels following extended maintenance will likely see a leveling or slightly declining trend across the second half of this year that will be taking some steam out of a bearish argument. But on the other hand, the demand side of the ledger could prove supportive as we still see longer-term trends favoring additional coal-to-gas substitution that will be cranking up electric generation demand to higher levels than generally expected within some of the upcoming EIA releases.”

PJM buyers for weekend gas to fuel electric generation may have to add a few logs to the fire as renewable generation across the power pool is expected to be light. “High pressure will continue to promote fair and seasonable conditions across the Mid-Atlantic today, but scattered storms are expected to pop up over western PJM,” said forecaster WSI Corp. in a Friday morning report to clients.

“It will trend warmer and more humid during the weekend, though this will support a chance of scattered showers and thunderstorms. High temps could top out as high as the mid 80s to mid 90s. A cold front is expected to sag southward during Sunday night into Monday with a chance for showers and thunderstorms. A few storms could be strong. Fair, warm and less humid conditions are expected in wake of the front by Tuesday. A variable west-southwest breeze will lead to periods of modest wind generation throughout the forecast period. Output is forecast to top out in the 1-2 GW range.”

In overnight Globex trading August crude oil fell 37 cents to $50.54/bbl and August RBOB gasoline fell fractionally to $1.8940/gal.