July natural gas is set to open a penny higher Tuesday morning at $2.90 as traders digest further deterioration in the weather outlook and mull Thursday inventory figures. Overnight oil markets plunged.

Overnight weather models shifted moderately cooler overall. “[Tuesday’s] 6-10 day period forecast is warmer than yesterday’s forecast across the Interior West into the central US,” said WSI Corp. in its morning report to clients. “However, the East and immediate West Coast are cooler. As a result,” continental United States population-weighted cooling degree days (CDD) “are down 1.6 to 37.9, which are 7.6 below average.”

Forecast confidence is only average today. Medium range models are in reasonably good agreement and have shown some consistency with the large scale pattern during the past few days, the forecaster said.

Analysts are looking lower.

“[W]hile nearby futures could hold yesterday’s lows at about $2.88, we still see a high probability of a further decline to the $2.82 area even prior to Thursday’s weekly EIA report,” said Jim Ritterbusch of Ritterbusch and Associates. “While a contraction in the storage surplus versus five year averages of about 15-20 Bcf would appear likely, such a reduction has been virtually discounted and a supply build of less than 60 Bcf may be required to force much additional selling. The chart deterioration of recent sessions is keeping the money managers focused on adding to a newly acquired net short position and we believe that much room exists for a considerably larger net bearish holding.”

Ritterbusch added that expectations of a lower CDD count “has forced enough chart deterioration to encourage the money managers further toward the short side. At the same time, expectations for a lift in production and a decline in power demand are keeping commercial concerns primarily involved in establishing short rather than long hedges, especially on price rallies. The late [last] week advance to above the $3 mark off of the supportive EIA stats appeared to foot the bill in this regard.

“From here, we see little chart support until about the $2.82 level where significant buying interest will likely be requiring assistance from Thursday’s storage release. Although the supply surplus will likely contract into the 215-220 Bcf zone, an implied injection of around 67 Bcf has likely been baked in. We are sidelined for now while anticipating a continued wide swinging trade with opportunities from both sides through the balance of this month and likely into next.”

In overnight Globex trading the expiring July crude oil fell $1.13 to $43.07/bbl and July RBOB gasoline lost more than 2 cents to $1.4255/gal.