March 1, 2012 / 3:06 PM / 5 years ago

NYMEX-Natgas off early ahead of weekly storage data

 * April contract slips for fifth time in six sessions
 * Mild weather, high supplies still weigh on prices
 * Late-winter nuclear plant outages help boost gas demand
 * Recent gas rig count declines, producer cuts also lend
support
 * Coming up: EIA, Enerdata natgas inventory data Thursday

 (Updates futures prices, adds cash prices)	
 NEW YORK, March 1 (Reuters) - Front-month U.S. natural
gas futures remained lower early Thursday as mild late-winter
weather forecasts and record high supplies undermined sentiment
despite the recent slowdown in drilling that could eventually
curb record high output.	
 Gas prices for the April contract have slipped five times in
the last six sessions, bouncing only on Wednesday as shorts
covered ahead of a weekly inventory report due out later this
morning.	
 While planned output cuts by several key producers and
unexpected nuclear plant outages have lent some support to
prices - front-month gas gained 4.5 percent last month - 
traders said a huge overhang in supply and tapering winter
heating demand were likely to limit gains in the near term.	
 At 9:30 a.m. EST (1430 GMT), the front-month gas futures
contract on the New York Mercantile Exchange was down 7.7
cents, or about 3 percent, at $2.539 per million British thermal
units after trading between $2.53 and $2.597.	
 Gas futures prices hit a 10-year low of $2.231 in late
January but have mostly been locked in a trading range between
$2.40 and $2.70 ever since.	
 Early cash quotes for Friday delivery at Henry Hub
NG-W-HH, a key supply point in Louisiana, were up a penny at
$2.45, with deals little changed from Wednesday at 10 cents
under NYMEX. Hub trade was active at 740 million cubic feet.	
 Next-day prices for gas on the Transco pipeline at the New
York City gate NG-NYCZ6 gained 3 cents to $2.69 on decent
volume of 366 mmcf.	
 AccuWeather.com expects temperatures in the Northeast and
Midwest, key gas-consuming regions, to mostly average above
normal for the next 10 days, with daytime highs, at times,
climbing to the mid- or high 50s Fahrenheit.	
	
 TIGHTER MARKET?	
 Traders noted recent weekly inventory reports have hinted at
a modest tightening in the supply-demand balance, but the
slightly supportive data so far has failed to stir buying.	
 Late-season nuclear plant outages are still running about
6,600 megawatts above normal for this time of year, which could
add more than 1 billion cubic feet to daily gas demand.	
 In addition, relatively cheap gas has drawn more industrial
use and prompted more utility fuel switching away from coal.	
 But with production still running at or near all-time highs,
 inventories likely to end winter at a record high and winter
winding down, traders said concerns were growing that gas prices
could soon test the January low.	
                 	
 STORAGE, THE BIGGEST PROBLEM FOR BULLS	
 Data from the U.S. Energy Information Administration on
Thursday is expected to show that gas inventories declined last
week by 90 billion cubic feet, according to a Reuters poll on
Wednesday. 	
 That would fall between last year's drop of 85 bcf and the
five-year average decline for that week of 118 bcf.        	
 Last week's inventory draw was larger than expected and
trimmed both the inventory surplus to last year and the
five-year average, but storage at 2.595 trillion cubic feet is
still at record highs for this time. 	
 A huge stock surplus of more than 700 bcf, or over 40
percent, built up during one of the mildest winters on record
should provide a huge cushion to meet any growth in demand this
year. (Storage graphic: link.reuters.com/mup44s )	
 Last winter at this time, cold weather forced storage owners
to pull more than 2 tcf from inventory to help meet the surge in
heating demand, but this season, only about 1.3 tcf of storage
gas has been burned up, a 37 percent drop.    	
 With no extreme cold on the horizon, most analysts expect
stocks to end the heating season at an all-time high of 2.2 tcf,
well above the previous record of 2.148 tcf set in 1983.	
 The inventory overhang could also spell trouble for prices
late in the summer stock-building season if storage caverns fill
to capacity and force more supply into the market.	
 Estimates for U.S. working gas storage capacity range from
4.1 tcf to 4.4 tcf, a level that could be tested if storage
builds from April through October match last year's 2.2 tcf.  	
   	
 IS PRODUCTION SLOWING?    	
 EIA data on Wednesday showed that lower 48 U.S. gross
natural gas production in December slipped from a record high in
November. It was the first significant decline in 10 months.	
 Traders have been waiting for steep declines in gas drilling
and planned output cuts by several key producers to be reflected
in output data, but EIA said the largest decline, seen in
Wyoming, was partly due to a compressor fire. 	
 Output in key shale plays like Marcellus is still growing.	
 Baker Hughes drilling data last week showed the gas-directed
rig count fell for the seventh straight week to a 29-month low. 
 The 24 percent slide since the count peaked at 936 in October
has stirred talk that low prices may finally slow production.
 (Graphic: r.reuters.com/dyb62s)    	
 Analysts agree it can take months for a slowdown in drilling
to translate into lower production, noting the producer shift in
spending to higher-value oil and gas liquids plays still
produces plenty of associated gas that partly offsets any
reductions in pure dry gas operations.	
 A Bernstein Research report last week said the gas-directed
rig count would have to drop to about 600 before they would be
comfortable forecasting flat to falling production.	
 Most analysts say planned production cuts announced so far
are not nearly enough to tighten an oversupplied gas market,
adding it will be difficult to balance supply and demand without
serious drilling declines.	
	
 Prices as of 9:35 a.m. EST in $/mmBtu:	
 	
       LAST     NET    PCT      LOW    HIGH  CURRENT  DAY AGO
               CHNG   CHNG                       VOL      VOL
 NGc1    2.537  -0.079  -3.0%     2.53   2.597   23,988  122,327
 NGc2    2.641  -0.069  -2.6%   2.6300   2.691    8,863   40,662
 CLc1   107.61    0.54   0.5%   106.55  107.86   78,244  278,723
 CLc2   108.04    0.52   0.5%   107.01  108.28   18,739   64,585
                                                                       
 TECHS    LAST   MA-30   MA-90  Boll up  Boll dn  RSI-30 Imp Vol
 NGc1    2.537   2.530   3.070    2.680    2.380   46.85   44.59
 CLc1   107.61  101.54   99.02    110.9    94.62   63.82   28.32
                                                                       
 	
 (Reporting by Joe Silha; Editing by Lisa Shumaker)	
 

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