July natural gas futures were set to open about 3 cents lower at $2.945 Friday morning as weather models turned slightly cooler for the South and Gulf Coast in the medium term.

The Nymex July contract fell as low as $2.951, down from Thursday’s settle of $2.975, and retreated a bit just ahead of Friday’s open. Weather model guidance overnight Thursday remained mostly the same as it reflected slightly less heat risks across the South and Gulf Coast with increasing confidence in the core of the strongest hot anomalies being across the northern tier, Bespoke Weather Services said.

“Heat still looks intense enough for cooling demand to approach record levels for a couple of days, although the South would likely need to heat further for those records to fall,” Bespoke chief meteorologist Jacob Meisel said. Still, after a cool short term, the forecaster expects to see heat pick up next week and likely peak next weekend, although there are only few signs yet of the pattern breaking long-term.

Some guidance into week 3 has begun to show that core ridging would shift into the Pacific Northwest and begin cooling the East, “a trend we expect to limit heat into the second half of July,” and forecasters are increasingly concerned that despite these hot forecasts, there are not many gas-weighted degree day (GWDD) additions left.

The modest cooling in the long term comes after the Energy Information Administration (EIA) delivered another bearish surprise to the gas market on Thursday. The EIA reported a 91 Bcf injection into storage inventories for the week ending June 15. The reported build was 6 Bcf above market consensus and lifted inventories to 2,004 Bcf, which is still 757 Bcf below year-ago levels and 499 Bcf below the five-year average of 2,503 Bcf.

In recent years, misses of 6-8 Bcf have become common and often are quickly reversed, EBW Analytics said. “Two consecutive misses, however, suggest that current production may be as much as 1 Bcf/d above estimates using pipeline scrape reports.” If next week's storage report (for the week ending June 22) continues the trend, downward price pressure could intensify, the company said.

ICAP Technical Analysis analyst Brian LaRose said as far as seasonal cycles are concerned, the market is currently “dead smack in the middle of the window” of a seasonal cycle advance. The question is whether market bears will be able to use that to their advantage. Resistance, however, is causing some trouble. “The first step for bears is to take out $2.90 to open up the door for further downside.”

Then it will be up the bears to take out another support zone at $2.85 zone after taking out $2.90. If $2.85 can hold, however, then the market could actually see another round of fresh highs, he said. There has been selling pressure in the $3 neighborhood so far, but LaRose said he’s been “impressed by the bulls’ resilience. Each and every time we have tried to sell off, the bulls have come fighting back.”

As for Friday, Bespoke expects a range-bound trading day from $2.92-3.00 as the natural gas market balances hot forecasts for the next two weeks against cooler risks likely to arrive late July, as well as production that is recovering back to near-record highs.

“Risk on a longer-term basis remains skewed lower in the natural gas market, thanks to loose balances and elevated production, but heat should at least keep support intact” on Friday, Meisel said.

Crude oil futures were trading $1.11 higher at $66.65, while RBOB Gasoline futures were trading 3.1 cents higher at $2.0435.