January 25, 2013 / 3:22 PM / 5 years ago

UPDATE 3-Front U.S. natural gas futures end down for 4th day

* Front-month futures slip 3.4 percent this week
    * High storage, production still weigh on prices
    * Above normal nuclear plant outages lend support

 (Releads, adds analyst quote, Baker Hughes rig data, updates
prices)
    By Joe Silha
    NEW YORK, Jan 25 (Reuters) - Most U.S. natural gas futures
ended slightly higher on Friday, but the front-month contract
lost ground for a fourth day on forecasts for milder weather
early next week that should slow heating demand.
    Traders said the nearby contract was due for a technical
pullback after climbing 7.2 percent last week ahead of this
week's cold. That was the biggest weekly gain in two months. 
    While still-high inventories and record production have also
weighed on prices - the front contract lost 3.4 percent this
week - most traders see only limited downside in the near term,
with nuclear plant outages still running above normal and
another shot of arctic air expected later next week.
    Front-month February gas futures on the New York
Mercantile Exchange, which expire on Tuesday, ended down 0.2
cent at $3.444 per million British thermal units after trading
in a fairly narrow range between $3.411 and $3.48. Most other
months ended 1-2 cents higher.
    "We've got a warm-up early next week, then we should get
back to colder weather, but I think the extended forecasts are
keeping the front month down," said Steve Mosley at The SMC
Report.
    Mosley noted that some computer weather models have been
flipping from warm to cold and back again in the eight- to
14-day forecast.
    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
from coal to cheaper gas for power generation.
    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.
    
    GAS RIG COUNT GAINS, FIRST TIME IN 3 WEEKS
    Baker Hughes data on Friday showed the gas-directed
drilling rig count gained for the first time in three weeks,
rising by five to 434. 
    (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 not far above the 13-1/2 year
low of 413 posted in early November, but so far production has
not shown any significant signs of slowing.
    The U.S. Energy Information Administration estimates that
output in 2013 will hit a record high for a third straight year.

    BIG STORAGE DRAW FAILS TO FIRM PRICES
    EIA data on Thursday showed domestic gas inventories fell
last week by 172 billion cubic feet to 2.996 trillion cubic
feet. 
    Most traders viewed the decline as supportive. While it
topped market expectations for the fourth straight week, prices
sold off sharply after the report was released.
    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.
    Well freeze-offs in the Midwest and utilities switching from
coal to gas have helped back stronger pulls from inventory, but
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 196 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.
    

 (Reporting by Joe Silha; Editing by Dale Hudson, Sofina
Mirza-Reid and Jim Marshall)

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