July natural gas is seen opening 3 cents higher Thursday morning at $2.79 as traders assess the impact of not only a key government inventory report but also the expiration of July options. Overnight oil markets eased.

The 10:30 a.m. EDT release of storage figures should shed more light on the production, coal-to-gas switching, power load, export dynamic. If estimates are correct, this week could be different. Last year 110 Bcf was injected, and the five-year pace stands at 87 Bcf. This week's numbers are expected to be lower.

"So this is a key week for statisticians; if the build is in the neighborhood we expect, the tally would bump over the 2,500 mark by a few B's and rank close to 40% over the same time last year," said John Sodergreen, editor of Energy Metro Desk (EMD), in his weekly storage analysis. "However, the expected build would be shy of the five-year average build for this week -- for the first time since April last year. Hmm. Is production really dipping? Not even close. Recall that we've been burning a bit more gas lately due to coal plant shutdowns, and oh yes, last week was the warmest week of the year."

If last week were the warmest of the year, this week looks to be even warmer, at least according to National Weather Service (NWS) cooling degree day (CDD) stats in key energy markets. NWS predicts greater cooling requirements from New England to the Midwest. For the week ended June 20 actual CDDs for New England were 10, or five below normal. The Mid-Atlantic endured 41 CDD or 12 above its seasonal norm, and the greater Midwest saw 42 CDD or six above normal.

For the week ended June 27 NWS sees a higher tally. New England comes in at 41, or 19 CDD above normal, and the Mid-Atlantic should see 49 CDD, or 12 above normal. The greater Midwest from Ohio to Wisconsin is forecast to bake under 63 CDD, or 21 above normal.

Analysts' estimates are coming in well shy of the five-year average. IAF Advisors is looking for a 76 Bcf injection, and Citi Futures Perspective checks in with a stout 83 Bcf build. A Reuters survey of 25 traders and analysts revealed an average 77 Bcf with a range of 72 Bcf to 88 Bcf.

"We see a lot of indications of a surprise tomorrow and possibly to the low side of the consensus. For this time of year, the range was fairly wide this week. 69 to 90 Bcf," Sodergreen said. The EMD survey also showed an average 77 Bcf build.

Short-term traders see the market holding steady inasmuch as options expire Thursday as well. "My guess is the market will linger around this $2.75 area with the options just below it," said a New York floor trader. "Next week I look for a test to $2.65."

He added that market expectations of a storage build of around 80 Bcf were built into the market, but the market has often been reacting in a counter-intuitive fashion. "The number comes out bearish and the market rallies a dime. It comes out bullish and we're off 5 cents. It's kind of strange."

In overnight Globex trading August crude oil fell 38 cents to $69.89/bbl and August RBOB gasoline eased fractionally to $2.0232/gal.