July natural gas is set to open 2 cents lower Friday morning at $2.61 as analysis shows a protracted storage surplus with estimates of ending inventories above 4 Tcf. Overnight oil markets rose.

Analysts are united in their bearish stance with what they see as a structural shift taking place. “Although the market appeared to have some difficulty digesting [Thursday’s] EIA [Energy Information Administration] report, we viewed the 132 Bcf injection as unequivocally bearish as it exceeded even our large expected build by 7 Bcf,” said Jim Ritterbusch of Ritterbusch and Associates in closing comments to clients Thursday.

“Given a string of larger than anticipated builds, some structural shifts appear to be taking place that are reinforcing our expectations for additional declines to the $2.50 area. But as we noted this morning, we expect support through tomorrow’s trade above the $2.54 mark and some additional possible consolidation early next week before another EIA release spurs more selling. On the upside, the market will have difficulty advancing much above the $2.70 level given the newly acquired surplus against the averages and the fact that today’s build was the second largest of all time.”

Others see not only ending storage north of 4 Tcf but also expect the oversupplied market to stick around for a while. “The 636 Bcf year-on-year storage surplus at winter exit has now expanded to 750 Bcf,” said Breanne Dougherty, an analyst with Societe Generale in New York. “With 149 days remaining before the ever-important end-of-October signpost, and a base case trajectory towards 4.1 Tcf, we see a need for some sustained ledger tightening ahead in order to avoid potential containment-type pricing behavior at the denouement of the season.

“Bottom line is that the supply side of the ledger has seen more sustained growth than the demand side over the last year. This is what leaves the market in a state of structural oversupply for, in our opinion, at least two more seasons.”

Tom Saal, vice president at FC Stone Latin America LLC in Miami, in his work with Market Profile expects the market to test Thursday’s value area at $2.636 to $2.599 before moving on and “maybe testing” the 50% breakdown target at $2.548.

In overnight Globex trading July crude oil gained 44 cents to $58.44/bbl and July RBOB gasoline tacked on 2 cents to $1.9985/gal.