August natural gas futures were set to open slightly lower Friday at around $2.793/MMBtu, with production and forecasts showing a let-up in heat across key markets that were keeping bears in control despite storage deficits.

If not for record production and periods of moderate temperatures expected for the Great Lakes and Northeast in the next two weeks, the current weather pattern would look more intimidating, according to NatGasWeather.

“The latest weather data held a cooler northern and eastern U.S. pattern mid and late next week but was hotter for the following weekend by favoring a stronger hotter ridge into the Midwest/Chicago,” NatGasWeather said. “Most importantly, the data continues to favor weather systems sweeping across the east-central U.S. with mostly comfortable conditions during the last week of July.

“...Overall, the burden falls squarely on a hotter pattern regaining momentum, and we expect it needs to happen in early August or time will be viewed as beginning to run out on ominous summer heat,” the firm said. “We see decent potential for heat to return in early August, but until more of the data comes on board the markets are likely to be skeptical.”

On Thursday the Energy Information Administration (EIA) reported a net 51 Bcf injection into Lower 48 gas stocks for the week ended July 6, lower than the 59 Bcf injected last year and well shy of the five-year average 77 Bcf build.

The fall in prices following EIA’s injection figure, which came in on the low side of surveys, illustrates the weakness in the market, according to EBW Analytics Group CEO Andy Weissman.

“This weakness, despite continued forecasts for very hot weather” for the July 13-19 period “and the largest storage deficit in four years, is a clear sign that bullish sentiment is rapidly disappearing from the natural gas market,” Weissman said. “Notably, despite significantly higher-than-normal” cooling degree days across the country this week day-ahead prices at Henry Hub finished at $2.84 Thursday. “While very hot near-term weather could temporarily provide support, prices at Henry Hub are likely to fall below $2.80” over the next week.

“A test of support at $2.70-2.74 could occur sooner than previously expected,” he said.

From a technical standpoint, the bulls have work to do to prevent prices from grinding lower, according to ICAP Technical Analysis analyst Brian LaRose.

“Just holding support is not going to be enough,” LaRose said. “To open the door for a recovery of some kind a close above $2.844 and a shift in the technical picture will be necessary. Only if both can be accomplished can we start raising the bar. Looking for the down trend to continue otherwise. Still peg $2.752-2.730 as the next step down should the bulls fail to make something happen here.”

August crude oil was set to open about 32 cents higher at around $70.65/bbl, while August RBOB gasoline was trading fractionally higher at around $2.0776/gal.