July natural gas prices were about 1.5 cents lower Monday ahead of the open, trading at $3.009 settle amid a modest pullback in near-term weather forecasts.

The Nymex July futures contract remained strong during the weekend as heat dominated weather outlooks, but Monday morning’s model runs suffered a modest loss in cooling degree days (CDD) in weeks 1 and 2, according to EBW Analytics. This was only the second time in the past week and a half that forecasts have shedded CDDs, the company noted.

“With forecasts still calling for more seasonal weather by mid-July, this could slow the rally early this week,” EBW said. The forecast for week 3, however, strengthens the hot weather anomaly for that period, which ends just after July 4, adding 5.3 CDDs and 4 Bcf of demand. By later this week, when traders start focusing on the potential for a hot start to July, the rally could resume.

“Weather anomalies later in July, however, remain the key to how far the rally will go,” EBW said.

Hotter trends through the long range indicate widespread heat for the end of June and early July, Bespoke Weather Services forecaster said. A positive North American oscillation pattern appears likely to focus more of the heat across the northern half of the country while the South likely enjoys temperatures closer to average, but any cooler weather in the second half of the 15-day forecast will be difficult to come by as the bias will be towards the hotter side.

“We do not see any indication of the hotter pattern breaking down just yet, so heat could easily stick around through the first third of July with bullish week 3 forecasts,” Bespoke chief meteorologist Jacob Meisel said.

Despite the overall hot trend for the next couple of weeks, traders instead appeared to focus on the modest easing in the short-term weather outlooks. Production was also showing signs of recovery Monday following a multitude of maintenance events in recent weeks.

Genscape Inc. said Lower 48 production had bounced back to close to 78.9 Bcf/d for Monday. The company’s production group estimated last week had volumes dipping to a low of 77.4 Bcf/d, primarily due to processing outages in the Denver-Julesburg Basin and the restoration of about 0.2 Bcf/d of flows from the Gulf of Mexico.

As for demand, temperatures in the Northeast and New England are expected to remain well above normal, but slowly cool to normal by mid-week. In New England, the forecast call for 12.8 CDDs on Monday and 11.2 CDDs on Tuesday, versus normal at 3 CDDs.

This should contribute to a bit of Algonquin volatility: an operational flow order is in effect for the market as the heat coincides with planned maintenance beginning Tuesday that would reduce flows through Algonquin Gas Transmission’s Southeast compressor station by 0.3 Bcf/d, Genscape senior natural gas analyst Rick Margolin said.

Demand across the rest of the country should remain strong through the middle of the week before also backing down to normal temperatures. Southeast and Midwest temperatures are all forecast to recede toward seasonal norms by Wednesday.

“Of interest, though, is a pretty notable upward revision to California towards end of week; any/all semblance of heat in that market is sure to drive volatility given ongoing constraints on storage and import pipeline capacity,” Margolin said.

From a Lower 48 perspective, Genscape is forecasting demand this week to average

about 67.3 Bcf/d, about 0.6 Bcf/d more than last week, with power burns running just shy of 32.7 Bcf/d, a roughly 2.6 Bcf/d increase week/week.

With bullish weather looking to increase, the story above the $3 level is increasingly one of balance versus weather, with near-record cooling demand likely needed to continue breaking prices out higher, Bespoke said.

“We see it as difficult to sustain prices above the $3.05 level given current balances, and any move into $3.08-$3.10 resistance would likely be a strong shorting opportunity unless forecasts heat up even more,” Meisel said.

Still, the weather forecaster sees room for a move higher even with the production recovery, as long-range heat is quite impressive. In the short term, Bespoke would still look for a bounce into resistance, with the caveat that any large bounce is likely to fail given unimpressive balances overall.

Crude oil futures were trading 18 cents higher at $65.24, while RBOB Gasoline futures were trading about 1.5 cents higher at $2.038.