May natural gas is set to open 3 cents higher Wednesday morning at $2.60 as analysts adjust their 2015 price forecasts lower but see longer term prices over $1 higher. Overnight oil markets were mixed.

In a research report earlier in the week Raymond James and Associates admitted that their earlier price forecast was a little off, but that didn't change the framework of their analysis over the longer term. "In January, we thought Henry Hub gas prices would average $3.00/Mcf for full-year 2015. This was $0.40-plus below futures strip pricing at the time and was based on our expectation that supply growth would continue to meaningfully outpace demand growth.

"That thesis still rings true, and our changes to the price deck are marginal. Supply growth continued accelerating into the end of 2014, with EIA-914 data for December up a whopping 11 Bcf/d y/y (including some liquids), and January was up 7 Bcf/d y/y. Despite colder than normal winter weather in 2014/15, supply growth has eliminated the storage deficit and created a ~600 Bcf surplus.

"We expect the continuation of strong production to be the primary lever causing gas prices to drift even lower as 2015 moves along, in spite of a declining gas rig count (note, it's not falling as rapidly as the oil rig count)," the Raymond James analysts wrote. "While coal switching has outpaced our model in early 2015, helping on the demand side, supply growth is winning the battle. Putting all this together, we are reducing our 2015 Henry Hub forecast from $3.00 to $2.80, with a bottoming in 3Q at $2.55. In 2016, however, we project only 1-2 Bcf/d of supply growth, which, coupled with rising industrial demand and a small amount of LNG exports, would suggest gas prices should bounce back at least to the mid-$3 range by the end of 2016. Longer term, it remains clear that producers can grow supply more than 5% annually (or over 3.5 Bcf/d) at gas prices below $4.00. Our 2016 forecast remains $3.55, and our long-term (2017-2020) forecast remains $3.75, though our bias on the long-term forecast is increasingly to the downside."

In the near term market technicians see the market's ability to hold above $2.50 as encouraging, but have yet to be convinced that any move higher is on the table. According to Brian LaRose, market technician at United ICAP, the market would have to exceed $2.759-2.777 on a closing basis for "us to get more excited about long positions once again."