August natural gas futures were set to open Thursday slightly lower at around $2.717/MMBtu, with the market turning its attention to the upcoming release of government storage data, which is expected to show an expanding year-on-five-year deficit despite record-level production.

Estimates for the Energy Information Administration (EIA) storage report point to another lighter-than-average inventory build this week. A Bloomberg survey of traders and analysts produced a median 56 Bcf build for the week ending July 13, with responses ranging from 44 Bcf to 65 Bcf.

Last year, EIA recorded a 31 Bcf injection, and the five-year average is a build of 62 Bcf. Last week, EIA reported a 51 Bcf injection for the week ended July 6, well below the five-year average 77 Bcf injection.

IAF Advisors analyst Kyle Cooper called for a 56 Bcf build for the upcoming report, while Intercontinental Exchange EIA Financial Weekly Index futures settled Wednesday at an injection of 54 Bcf.

NatGasWeather said early Thursday its algorithm was showing a 55 Bcf build based on cooler than normal conditions over the East and parts of the South, with hotter conditions over the West and Plains.

Meanwhile, guidance overnight “held hotter trends over the East for the first half of next week but continued to show a steady barrage of weather systems with showers and cooling arriving into the Midwest and east-central U.S. before and after, the only major flaw in an otherwise hot summer pattern.

“...Clearly, the markets are putting more weight on record production even though” the supply growth has “yet to reduce deficits the past two months by a single Bcf,” the firm said. “We see bears getting a little too extended here with hefty deficits continuing and don’t see them pushing prices too much lower until builds start coming in larger than five-year averages, which is still several weeks away.”

Cooling degree days and power burns should start to “rapidly decline” over the next few weeks, lowering cash prices and putting pressure on futures, according to EBW Analytics Group CEO Andy Weissman.

As for the EIA report, set for release at 10:30 a.m. ETt, “in recent weeks the market has generally shrugged off storage misses,” he said. “Traders may be waiting, however, for the dust to settle after the report is released before they expand short positions.”

From a technical standpoint, natural gas has three support bands before it reaches long-standing support at $2.521, according to ICAP Technical Analysis analyst Brian LaRose.

“The first cuts at $2.701-2.672. Beneath that we have $2.642,” LaRose said. “Then there is $2.610-2.607-2.600. We see this last band as the best shot the bulls have” for some kind of rally. “In the event the bulls are unable to pull natural gas out of this tailspin expect the $2.521 level to be challenged for a sixth time.”

August crude oil was set to open about 76 cents lower at around $68.00/bbl, while August RBOB gasoline was trading about 2.1 cents lower at around $2.0235/gal.