August natural gas is set to open a penny lower Friday morning at $2.77 even though traders are factoring in expected higher demand over the next two weeks. Overnight oil markets rose.

In spite of a weak performance following the release of supportive storage figures, fundamentals for next week appear sound as warmer than normal temperatures are expected in major market areas. “A moderate warm-up in temperatures should lift demand in regions east of the Rockies next week,” said industry consultant Genscape in a Friday morning report.

“Genscape meteorologists are forecasting total population weighted CDDs will move above seasonal norms of 127 CDDs starting Tuesday, peak at 153 CDDs by Thursday, and remain well above normal through the rest of the 14-day forecast period. Western regions (California, Desert Southwest, Rockies) will actually experience below-normal temperatures, but all regions east will be above. The largest deviations will focus on the Midwest and Northeast.

“Midwest CDDs are forecast to run nearly double seasonal norms. As a result, Genscape’s Midwest demand forecast nears a peak of 9.5 Bcf/d by Thursday, 1 Bcf/d above current levels. Appalachia demand is forecast to climb to a peak of 11.8 Bcf/d by Thursday, about 1.7 Bcf/d above current levels, [and] New England demand is coming off levels around 2.3 Bcf/d and will fall to around 1.6 Bcf/d this weekend. But next week’s warm-up is expected to get demand back to current 2.3 Bcf/d levels.”

Analysts see the market repositioning for a further advance.

“This market continues to digest the sizable price declines seen Tuesday-Wednesday in gradually developing a base for a renewed price advance in our opinion,” said Jim Ritterbusch of Ritterbusch and Associates. “Although [Thursday’s] 39 Bcf storage injection was 8 Bcf smaller than we had anticipated, bullish response by the market was limited by the fact that the supply overhang remains sizable at about 600 Bcf. But we expect further surplus contraction to around 575 Bcf next Thursday with further narrowing likely during the second half of this month.

“We are maintaining a theme that this dynamic of surplus reduction is a more important price motivator than the static factor of a large supply overhang that has been well discounted. And while conceding to a recent larger than expected upswing in production, we will note that the bulk of the summer remains ahead and that unplanned disruptions or major hurricane activity could easily reverse output gains.”

In overnight Globex trading August crude oil gained 18 cents to $45.32/bbl and August RBOB gasoline rose fractionally to $1.3643/gal.