Coming off a strong rally to start the week, natural gas futures were easing back in early Tuesday trading as forecasters noted only small changes to the latest weather outlook. The Nymex July contract, set to expire this week, was down 2.4 cents to $2.279/MMBtu shortly after 8:30 a.m. ET; August was off 2.7 cents to $2.257.

After getting hammered last week, futures rebounded Monday despite only a modest increase in weather-driven demand expectations compared to last Friday’s forecasts, observed EBW Analytics Group CEO Andy Weissman.

“This recovery was due primarily to: one, a rebound in natural gas cash prices at Henry Hub, which averaged $2.28 even though hotter weather is still a few days away; and two, recognition that last week’s sell-off was overdone and would have reduced projected end-of-injection-season storage to unacceptable levels,” Weissman said.

“Expectations that prices will rise into Wednesday’s final settlement for the July contract may also have played a role.”

While a “modest pullback” could be in store for early Tuesday’s trading or on Wednesday, Monday’s closing price “is still too low given potential power sector demand in July,” suggesting prices could rise further before the end of trading Wednesday, according to Weissman.

Looking at Monday’s rally, NatGasWeather pointed to a combination of warmer trends in the European model, stronger-than-expected power burns, record-level liquefied natural gas (LNG) exports and “shorts making a rush to book profits” ahead of the July expiration this week.

As for the overnight weather data, the forecaster viewed the latest trends as mixed, with the Global Forecast System adding heat for early next week and the European model shifting slightly cooler, resulting in better alignment between their respective outlooks.

“Also of interest, most of the data was slightly hotter July 4-10,” NatGasWeather said. “But even though the pattern has trended hotter since last Friday, it still might not be hot enough to result in smaller than normal builds.

“Price is king, and the markets appear temporarily satisfied some demand has been added to lead to a bounce off last week’s lows. Although, we expect it will be telling whether August holds gains after July expiration.”

Following the plump 115 Bcf injection reported by the Energy Information Administration last week, it could take more than a “minor hot weather event” to significantly change the fundamentals outlook, according to Energy Aspects.

“Our U.S. balances are still calling for a storage carryout near 3.7 Tcf,” the firm said. “With July fast approaching, our power burn estimate,” based on recent prices and assuming 10-year normal weather, implies burns at 40.5 Bcf/d. “As such, additional heat or price weakness should not result in estimated gas demand in power shifting much higher.”

As for exports, recent strength in LNG feed gas demand suggests limited upside, though “higher sustained flows into Cameron LNG or steady volumes into Freeport LNG could move the needle slightly. The Sur de Texas-Tuxpan system could begin to deliver gas other than the current linefill flows, though the extent to which that will occur with LNG cargoes into Altamira scheduled until end-July is questionable.”

August crude oil futures were trading 7 cents lower at $57.83/bbl just after 8:30 a.m. ET, while July RBOB gasoline was trading fractionally higher at $1.8564/gal.