January 25, 2013 / 2:32 PM / 5 years ago

Front U.S. natgas futures edge up early, 1st gain in 4 sessions

NEW YORK, Jan 25 (Reuters) - Front-month U.S. natural gas
futures edged higher early Friday for the first time in four
sessions, with cold near-term weather propping up prices despite
the brief warm-up expected next week that should slow overall
heating demand.
    Traders said the market was due for a technical pullback
this week after climbing 7.2 percent last week ahead of the
cold. It was the biggest weekly gain in two months.
    Prices lost ground this week ahead of milder Northeast and
Midwest forecasts for early next week, particularly with
inventories and production still relatively high.
    But few traders expected much downside, with nuclear plant
outages still running above normal and another shot of cold air
forecast for later next week.
    At 9:10 a.m. EST (1410 GMT), front-month February gas
futures on the New York Mercantile Exchange, which expire
on Tuesday, were up 0.4 cent at $3.45 per million British
thermal units after trading between $3.411 and $3.48.
    The front contract had lost 3.4 percent in the previous
three sessions.
    Commodity Weather Group on Friday said it expected an
"impressive" warm-up early next week, but cold air was expected
to return to the Midwest and then spread east by midweek,
dropping temperatures to below or much below normal into        
                                          early February..
    Some traders, noting the recent surge in weekly inventory
draws, said stronger-than-expected demand may reflect new growth
in gas use this year as some utilities make a permanent switch
away from coal to cheaper gas for power generation.
    
    BIG STORAGE DRAW FAILS TO FIRM PRICES
    U.S. Energy Information Administration data on Thursday
showed total domestic gas inventories fell last week by 172
billion cubic feet to 2.996 trillion cubic feet. 
    Most traders viewed the decline as slightly supportive,
noting it was above the Reuters poll estimate of 167 bcf and
topped market expectations for the fourth straight week.     
    The weekly draw widened the deficit relative to last year by
10 bcf to 157 bcf, or 5 percent below last year's record highs
for that time.
    But while well freeze-offs in the Midwest and utilities
switching from coal to gas have helped back stronger pulls from
inventory, traders noted that storage is still high at 320 bcf,
or 12 percent, above the five-year average.
    (Storage graphic: link.reuters.com/mup44s)
    Early withdrawal estimates for next week's storage report
range from 195 bcf to 210 bcf. That would be well above the 149
bcf drawn from inventory during the same week last year and the
five-year average decline for that week of 178 bcf.    
    If drawdowns for the rest of winter match the five-year
average pace, inventories will end March at 2.048 tcf, about 18
percent above normal but 17 percent below last year, when stocks
finished a very mild heating season at a record high 2.48 tcf.
    
    GAS RIG COUNT FALLS, OUTPUT STILL NEAR RECORD
    Traders were waiting for the next drilling rig report from
Baker Hughes on Friday.
    (Rig graphic: r.reuters.com/dyb62s) 
    Drilling for natural gas has mostly been in decline for more
than a year. The gas rig count is hovering just above the
13-1/2-year low of 413 posted in early November, but so far
production has not shown any sign of slowing.
    The Energy Information Administration estimates that output
in 2013 will hit a record high for a third straight year.

 (Reporting By Joe Silha; Editing by Chizu Nomiyama)

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