With the weather outlook trending hotter for later this month, natural gas futures were up slightly in early trading Friday, although analysts continued to point to looseness in the supply/demand balance. The July Nymex contract was up 0.9 cents to $1.647/MMBtu at around 8:45 a.m. ET.

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The next few days could prove critical for natural gas, according to analysts at EBW Analytics Group.

“Natural gas remains on a knife’s edge,” the analysts said. “Ordinarily, a seasonal rally might be expected.” However, expected weather-driven demand over the next week has “moderated over the past few days” and liquefied natural gas (LNG) feed gas volumes “remain uncertain, creating mixed signals.

“In this context, weather over the next few days will be important. This morning’s forecast ticks slightly cooler near-term but trends hotter” for June 26-July 2, “which should provide support for gas prices,” the EBW analysts said. “The most important test, however, will come next week. Natural gas still has a reasonably good chance of moving higher. If weather forecasts disappoint, however, the July contract could briefly test support in the mid $1.50s.”

Meanwhile, the U.S. Energy Information Administration (EIA) on Thursday reported an injection of 85 Bcf into storage for the week ending June 12. The print was in line with the averages of major polls. It was notably lower than the 111 Bcf build during the same week a year earlier and slightly below the five-year average build of 87 Bcf.

The latest injection lifted inventories to 2,892 Bcf, compared with the year-earlier level of 2,170 Bcf and the five-year average of 2,473 Bcf, according to EIA.

Analysts at Tudor, Pickering, Holt & Co. (TPH) described this week’s EIA report as “a bit of a yawner” given that it landed close to consensus expectations.

“On a weather-adjusted basis, the build implies an oversupplied market of about 1.5 Bcf/d, up from 1.0 Bcf/d last week,” the TPH analysts said, pinning the blame for the looser balances on a roughly 1 Bcf/d week/week drop in feed gas demand that was offset by lower Canadian imports. The build fell in line with seasonal norms even as degree days came in 9% above normal, “a further reflection of the oversupply in the market.”

For next week’s report, weather-driven demand is on track to fall below normal levels, potentially setting the stage for a build “well above typical levels,” according to TPH.

“With LNG settling into a new range around 3.8 Bcf/d, the return of associated supply is the variable to watch and will likely need to be offset by above-normal weather in order to halt the pricing slide,” the TPH analysts said.

Genscape Inc. analysts similarly viewed this week’s 85 Bcf print as implying the market was about 1.2 Bcf/d loose versus the five-year average when compared to degree days and normal seasonality. U.S. LNG export demand has averaged about 4 Bcf/d in June so far, down about 2.4 Bcf/d versus May levels and down about 1.5 Bcf/d from last June, according to the firm.

“The good news is that European storage injections have averaged nearly 5 Bcf/d below normal for the past three weeks,” Genscape analysts said in a note to clients early Friday. “Continued injections at that pace versus normal would put European storage below last year by the end of October.

“The reduction in U.S. LNG production in June has not yet had a significant impact on European balances as it takes around two weeks for a cargo to get from the Gulf Coast to European regas terminals. Reduced pipeline flows into Europe have played a big role in bending the European storage curve.”

July crude oil futures were up $1.28 to $40.12/bbl at around 8:45 a.m. ET, while July RBOB gasoline was up about 2.2 cents to $1.2796/gal.