August natural gas is expected to open 6 cents higher Wednesday morning at $2.90 as traders look for short-covering to boost a “conservatively” valued market another 15 cents higher. Overnight oil markets fell.

Weather forecasters continue to call for elevated heat as next week high pressure is expected to sit over the central United States prompting high air conditioning loads. They admit, however, to model uncertainty regarding the handling of a weather system expected to impact the northern U.S.

“The latest overnight weather data retains a very warm to hot U.S. pattern over the next two weeks, although there are still some weather model struggles trying resolve if cooler temperatures will find a sneaky way to spill across the northeastern U.S. late next week,” said in a morning report.

“This scenario isn’t preferred but is still in need of close watching. The feature causing the greatest model uncertainty is how a weather system during the middle of next week spins up over the northern U.S. Some scenarios try to cut the system off from the main flow and stall it over the East Coast with showers and thunderstorms, which would keep temperatures more seasonal   However, we believe it’s more likely to track right around the periphery of the hot dome of high pressure in a fairly progressive fashion where it fails to push very far into the U.S. only brings only slight cooling, while also exiting off the Atlantic Coast relatively quickly.”

Others see the forecast heat more at the end of the month. Tim Evans of Citi Futures Perspective sees the heat shaving off a portion of an increased year-on-five-year storage surplus. He calculates the year-on-five-year storage surplus as reaching 84 Bcf by July 24 but then slipping back to 74 Bcf by the end of the month.

“Overall, we see the net increase in the surplus over the month of July as slightly bearish, but that may no longer be the compelling story. Instead, stronger seasonal power sector demand to meet air conditioning loads will be limiting storage injection rates, with weekly refills dropping from a projected 92 Bcf build for the week ended July 10 to a 42 Bcf gain in the week ending July 31.

“Coupled with what we continue to see as a relatively conservative current valuation and the potential for a further round of short covering, we think [that] could lift the market above the $3 mark in the months ahead.”

Evans recommends holding on to a long August position opened at $2.68 on July 8 with a protective sell stop resting at $2.63 to limit exposure on the trade.

In overnight Globex trading August crude oil fell 47 cents to $52.57/bbl and August RBOB gasoline dropped 2 cents to $1.9085/gal.