August natural gas is expected to open 5 cents lower Tuesday morning at $4.41 as traders factor in reduced industrial demand over the upcoming holiday weekend and discount tropical activity. Overnight oil markets rose fractionally.

Traders see Monday's gain a result of warmer weather forecasts and production data that didn't live up to expectations. "Although the source behind today's 1% price advance was difficult to pinpoint, the rally appeared to emanate from some shifts toward warmer temperature views," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Monday to clients.

"Additionally, the monthly production report from the EIA [Energy Information Administration] may have provided some bullish impetus. Output in the Lower 48 during the month of April achieved a new record as expected, but the 1.3% upswing from March was smaller than many observers had expected given the exit from an exceptionally cold first quarter. Of late, production appears to be gaining on a year over year basis by around 4-5% while we still feel that increases against last year need to be elevated up to above 6% in order to keep injections strong enough to provide for an ample supply peak next fall that we estimate at about 3.5 Tcf. Looking out through the rest of this week, the physical trade could encounter some downside pressures from a weakening in industrial demand as many plants shut down for three days over the 4th [of July]."

Physical prices at both eastern and western points are likely to be strong in Tuesday's trading for Wednesday as temperatures in the desert Southwest and Northeast are expected to be well above seasonal norms. Look for firm pricing on El Paso and Kern River as temperatures in Las Vegas are expected to reach a high of 112, 9 degrees above normal, according to The Weather Channel (TWC), and Phoenix is seen cooking at 111 degrees, 4 degrees above it's normal early July high.

Deliveries to the Algonquin Citygates are also likely to enjoy a firm underpinning as TWC forecasts a high in Boston Wednesday of 89, 9 degrees above normal. Transco Zone 6 into New York looks to be robust as well as the high Wednesday is seen at a sultry 90, also 9 degrees above its typical early July high.

In its 8 a.m. EDT report, the National Hurricane Center (NHC) reported that Tropical Depression One was 95 degrees southeast of Cape Canaveral, FL, and was stationary. Maximum sustained winds were 35 mph. NHC projected the storm to move up off the East Coast and expected it to reach tropical storm status later Tuesday.

In overnight Globex trading, August crude oil added 32 cents to $105.69/bbl and August RBOB gasoline gained fractionally to $3.0450/gal.