It looks as if this July will be the hottest in the U.S. When population is factored in, July 1999 is apt to still hold the record, with 2005 in second place. Nevertheless, we're on track to burn almost one-half trillion cubic feet of natural gas this month to run our air conditioners. Electricity loads have also set records in several areas, including Southern California, where the California Independent System Operator called Stage 2 alerts as operating reserves shrank. Fortunately, the average gas-fired power plant has also become more efficient in recent years, offsetting increases in electric loads. Gas in storage continues to be above the five-year average, but the hot weather is taking its toll on gas supplies, with a little help from Hurricane Dennis. Storage surpluses have declined by nearly 200 billion cubic feet since the end of 2004 despite a slightly warmer than average first quarter, which reduced heating loads. The good news, in addition to improved power plant efficiency, is that Canada was able to boost exports to the U.S. so far this year. Without the additional gas from Canada, surpluses would be just about gone and gas in storage would be about average. Should Canadian exports falter, U.S. production sag, hot weather continue, and\/or more storms in the Gulf of Mexico shut in production, storage levels could quickly drop below average and create concerns about next winter's supply. The markets watch these data carefully, and current prices reflect the probability of further bad news. There is little upside potential, and traders are hedging downside supply-demand risk. The August NYMEX contract ended trading yesterday at $7.65\/MMBtu, $1.42 above last year's August close. Pessimism for the coming year is reflected in the price of the 12-month strip, the average price of contracts for future delivery. The strip price now stands at $8.12\/MMBtu, an increase of $1.71 over last year at this time. The U.S. has cooled down a bit in the last few days, but the gas markets remain hot—and for good reason.