August natural gas futures were set to open Tuesday near even at around $2.863/MMBtu following Monday’s declines, with record-level production and expectations for recent summer heat to ease, keeping the bears in the driver’s seat for now.

EBW Analytics Group CEO Andy Weissman said Monday’s 6.2 cent sell-off saw the front month take out support in the $2.87-2.88 area.

“This decline was due in part to continued cooler weather forecast shifts during the day, and pipeline scrape reports indicating a substantial further production increase over the weekend,” Weissman said Tuesday. “Weather forecasts for late July and August remain the most critical factor affecting the market. While changes in the 15-day forecast are minimal this morning, indications are increasing that a cooler shift could occur during the last 10 days of July.

“We expect gas prices to probe lower again this morning. Profit-taking before the July Fourth holiday, however, is likely to limit the extent of any decline.”

NatGasWeather said overnight guidance continued to show “modest cooling” for the East this weekend, with the Global Forecast System and European models mixed for the July 11-15 period.

“Both advertise warmer than normal conditions over most of the country the next two weeks with widespread highs of upper 80s to 100s,” the firm said. The models show “another modest shot of cooling into the Northeast around July 14. If it wasn’t for these minor intrusions of cooling over the East, the pattern would be much more impressive.

“In past years, this type of pattern would have been plenty hot enough for the market’s liking, but with record production, not enough to take out and hold $3.”

Storage deficits are expected to increase to around 525 Bcf over the next couple of Energy Information Administration reports because of the recent and forecast heat, according to NatGasWeather.

“Clearly, record production is a major issue and even with much greater than normal” cooling degree days, demand levels suggest “as soon as summer heat abates, deficits will quickly dissipate. But when exactly will widespread summer heat ease? To our view, not for another five to six weeks,” the firm said.

From a technical standpoint, “$2.869-2.867-2.855-2.853-2.848 represents our target for a measured move off the $3.053/3.043 highs,” while “$2.809-2.795-2.792-2.774 represents the lowest levels consistent with any corrective retreat off the $3.053/3.043 highs,” according to ICAP Technical Analysis analyst Brian LaRose. “Find support into one of those bands and natural gas still has a shot at one more round of fresh highs. Fail to carve out a bottom and we will be setting our sights on $2.610-2.600 next.”

August crude oil was set to open about 77 cents higher at around $74.71/bbl, while August RBOB gasoline was trading about 1.6 cents higher at around $2.1205/gal.