August natural gas is expected to open 2 cents higher Monday morning in spite of weather forecasts calling for moderation and a weak technical picture. Overnight oil markets fell.

Tim Evans of Citi Futures Perspective said Friday’s nearly 7 cent decline in the August contract could have been the result of “book squaring” ahead of Monday’s options expiration and Tuesday’s futures expiry. “As open interest and volume on the contract decline, there’s also some increased potential for volatility if the last of the long liquidation doesn’t match up evenly against the last of the short-covering.”

Looking at storage Evans noted that “the larger bearish trend remains intact, with refills exceeding the five-year average rate in each of the past 14 weeks. Particularly with the current forecast for cooler than normal temperatures east of the Rockies [this] week, this trend looks likely to continue,” he said in closing comments Friday.

Evans is looking for a storage build of 89 Bcf to be reported this week, well above last year’s 56 Bcf addition and a five-year average of 45 Bcf. By Aug. 8 he figures the year-on-five year deficit will have contracted to 555 Bcf from its current 683 Bcf. “A declining deficit is normally bearish for prices,” he said.

Forecasters call for continued coolness. In its morning six- to 10-day outlook, Commodity Weather Group showed a broad ridge of below-normal temperatures extending from Colorado to West Virginia and Iowa to Louisiana. “The general sense compared to last Friday’s forecast is not quite as cool overall for Midwest, East and South over the next two weeks, with a slight national demand gain; however, we still do not see any major heat concerns with overall demand continuing to track lower than normal through the first half of August,” said Matt Rogers, president of the firm.

“We see hotter changes in California for this week and next (low 90s in Burbank and upper 90s at times in Sacramento), while increases in monsoonal moisture are holding the Southwest back cooler. The six-10 day still favors a cool focus for the Midwest to South, but the modeling shows more variability for the 11-15 day. We lean toward the cool side overall, but show some variability in the 11-15 with some weak warmth in the Northeast late in the 11-15. A strong tropical wave in the eastern Atlantic may become Bertha this week, but the routing is favored to avoid the Gulf.”

With futures continuing to grind lower, technicians are trying to find a spot where the market might stabilize. “After this week, it is unclear where the market might find support. There are some candidates and the first is the 0.618 retracement of the entire move up from $1.902 to $6.493 at $3.655. I will be surprised if natural gas does not test this retracement,” said Walter Zimmermann of United ICAP in a weekly webcast to clients.

“If it tests this and holds on the first test, then tries to rally, the minimum requirement for the bulls to have any chance at bottoming action, even after a successful test of $3.655 would be a decisive weekly close above $3.945.

“Let’s say natural gas weakens on Monday and holds $3.66, then it would have to close the week above $3.945 for any hope of bottoming action. Otherwise that keeps the door open for another leg down to the $3.48 and $3.41 levels.”

In overnight Globex trading, September crude oil fell 68 cents to $101.41/bbl and September RBOB gasoline dropped a penny to $2.8290/gal.