With the recently volatile natural gas market continuing to decipher the storage picture as the end of injection season nears, futures were up a few pennies in early trading Friday. The September Nymex contract was up 3.2 cents to $2.197/MMBtu at around 8:40 a.m. ET.

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The forecast outlook shifted slightly hotter overnight, according to Bespoke Weather Services. Changes included hotter trends from the American model and slightly cooler adjustments in the European model, bringing them into better alignment overall, the forecaster said.

“The picture of a hotter than normal pattern setting up for the balance of August, focused around the northern half of the nation, remains the story, with higher confidence given the model shifts,” Bespoke said. “As has been the case virtually all summer long, the South stays near normal, and we did see some cooler changes in the Northwest owing to the re-strengthening of the La Nina base state per a fall in projected global angular momentum anomalies.”

Looking at natural gas prices, the firm’s analysts said they saw “an interesting dilemma, where we continue to have a bullish longer-term lean but suspect there can be a near-term pullback.” Bespoke viewed Thursday’s Energy Information Administration (EIA) storage report as “weak enough for us to be concerned that we may have rallied a little too much, too soon.”

EIA reported that inventories for the week ending July 31 rose by 33 Bcf, which came in far below last year’s 58 Bcf injection but was exactly on par with the five-year average. Total working gas in storage as of July 31 stood at 3,274 Bcf, 601 Bcf higher than last year and 429 Bcf above the five-year average, EIA said.

Analysts at Tudor, Pickering, Holt & Co. (TPH) said the latest EIA print implies the market was roughly balanced during the report week after adjusting for weather. 

The volatility in this week’s natural gas market, which included a roaring 30.2-cent advance in Monday’s session, could become commonplace for the next couple months, according to TPH.

“As we see it, the market is caught between two very different outcomes,” the TPH analysts said. Either “storage is OK and should allow the market to price a more normal summer-winter spread, which would price prompt closer to $2.50, or storage is a problem and we need to price supply out of the system and/or stimulate power demand, pricing prompt in the $1.50-1.60 range.”

TPH currently estimates a carryout of 4.06 Tcf. This “leaves a reasonable amount of wiggle room,” but regionally the South Central, Midwest and East regions are all on pace for a possible storage crunch, according to the firm.

“Given the vastly different outcomes depending on whether we can clear storage or not, we suggest tightening the shoulder straps as we ride out the next couple months,” the TPH team said. “…In terms of where the next round of volatility may take us, we believe prices could soften from here as production looks positioned for a near-term boost” and as “the European market begins to loosen.” TPH also projects an above-average injection around 60 Bcf for next week’s EIA report.

September crude oil futures were off 5 cents to $41.90/bbl at around 8:40 a.m. ET, while September RBOB gasoline was up fractionally to $1.2293/gal.