July natural gas is expected to open 12 cents lower Tuesday morning at $3.19 as traders are forced to digest weather forecasts calling for cooling right at the time when summer power generation demand normally kicks in. Overnight oil markets retreated.

Forecasters are calling for a cooling trend toward the middle of June. “The latest 11-15 day period forecast is also a little cooler than previous forecasts over the eastern two-thirds,” said forecaster WSI Corp. in a morning report to clients. “CONUS PWCDDs are down 1.2 from yesterday’s forecast and are now forecast to be 33.6 for the whole period.”

WSI points out that the forecast could trend either cooler or warmer. “A slower transition, weaker tropical forcing and the ECMWF [European model] supports a cooler risk over the East. The GFS [Global Forecast System] guidance and La Nina like tropical forcing offers a warmer risk much of the period.”

Analysts see the market as a tug-of-war between increasingly bearish short-term weather and a long-term supply surplus that continues to shrink. “This market continues to zig and zag but with an increasing downward bias,” said Jim Ritterbusch of Ritterbusch and Associates in a morning report to clients. With the passing of the Memorial Day holiday, the temperature factor will take on increasing importance, and at the present time, the short term one- to two-week temperature views appear skewed decidedly in a bearish direction.

“Weekend updates are favoring unusually mild patterns across the eastern half of the U.S. that should keep CDDs downsized at a time when air conditioning requirements are usually beginning to ramp up electric generation demand. However, downside follow-through remains elusive given the bullish dynamic of a contraction in the storage surplus that is likely to be sustained through this week’s data. A repeat of last week’s contraction in the supply deficit of around 17 Bcf will likely be equaled or exceeded in the process of pushing the supply overhang down toward about 220 Bcf. But we also believe that continued mild Midcontinent temps that could be extended into mid-month by the middle of this week could provide a footing for a reversal of this spring pattern with the surplus potentially expanding. Such a development could set the stage for some downside follow-through in the newly prompt August contract to as low as the $3.05 area where we may look to approach the long side.”

Ritterbusch sees trading opportunities for nimble traders willing to work both sides of the market. “We are viewing this market as one that can potentially be worked from both sides next month since we are also viewing any price advances toward the $3.55 area as a short-term selling opportunity. We will also be monitoring the fall 2017-winter 2018 spreads for an opportunity to buy the front and sell the back months in anticipation of some tightening in the supply/usage balances during the upcoming summer.”

In overnight Globex trading July crude oil fell 45 cents to $49.35/bbl and July RBOB gasoline shed a penny to $1.6134/gal.