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Hefty Build Expected? No Problem; July Seen 3 Cents Higher

July natural gas is set to open 3 cents higher Thursday morning as traders discount estimates of an increase in storage inventories that are well above historical norms and as they factor in expected heat. Overnight oil markets surged.

Gas continues to get pounded into storage, and Thursday's Energy Information Administration (EIA) inventory report is again likely to show builds well above historical averages. Last year, 97 Bcf was injected, and the five-year average stands at 88 Bcf.

"We should also mention that if the EIA number comes out near our consensus [112 Bcf], it would be the eighth week in a row that builds pummeled the five-year average, the fifth week in a row the EIA reported a bigger than last year build and the eighth week in a row that EIA was higher than the consensus," said John Sodergreen, editor of Energy Metro Desk. "That last bit would be very odd indeed. Also, we've not had a real 5 plus or minus Bcf surprise out of EIA since late April (reclassifications notwithstanding). This, too, is pretty weird. The odds seem to stack up with a possible surprise for [Thursday] (5 Bcf higher or lower than our consensus), but we're not 100% behind that one; The Survey Index is at 111 Bcf, and our consensus is slightly higher at 112 Bcf. We think the bias is to the high side, between 112 and 116 Bcf."

Other estimates include IAF Advisors at 109 Bcf, and United ICAP calculates a 121 Bcf increase. Bentek Energy's flow model figures on a 113 Bcf build, and a Reuters survey of 22 traders and analysts resulted in an average 110 Bcf with a range of 101 Bcf to 117 Bcf.

At NatGasWeather.com they are looking for sweltering heat over Texas and points west in the eight- to 14-day period. "High pressure will remain anchored over the southern U.S. with warm conditions continuing for much of the central and eastern U.S. The core of the 90-105 degree F heat will be focused over Texas, the southern Plains, and the desert Southwest. The Pacific Northwest and New England will see a timely weather system bring near-normal temperatures and showers. It will be up to the ridge of high pressure to remain strong and deflect weather systems approaching the northern U.S. if warm/hot weather patterns are going to continue over the Midwest and Northeast, and we still think it will."

Tom Saal, vice president at INTL FC Stone, said the "back years, Cal'15, Cal'17 and Cal'19, are still overbought." In his work with Market Profile he is looking for the market to test $4.557-4.531 before moving on and testing $4.695-4.655. He sees the Thursday EIA inventory report at 135 Bcf "due to 'paradigm shift' in production."

In overnight Globex trading July crude oil jumped $2.01 to $106.41/bbl and July RBOB gasoline added 5 cents to $3.0542/gal.

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