September 26, 2012 / 1:30 PM / 5 years ago

U.S. natgas futures rise ahead of October expiration

* High nuclear plant outages boost near-term demand
    * Short covering props up prices a second day pre-expiry
    * Mild autumn weather should limit more gains
    * Coming up: EIA oil data Wednesday, EIA gas data Thursday

    By Eileen Houlihan
    NEW YORK, Sept 26 (Reuters) - U.S. natural gas futures rose
more than 1 percent early on Wednesday, lifted by some short
covering for a second day ahead of the October contract's
expiration later Wednesday.
    In addition, a high number of nuclear power plant outages
helped boost near-term demand, but mild autumn weather across
much of the nation could limit more upside.
    Despite the gains in futures, most traders agree prices will
have a hard time breaking back above $3 per million British
thermal units, the level at which gas tends to lose market share
over coal for power generation.
    As of 9:22 a.m. EDT (1322 GMT), front-month October natural
gas futures on the New York Mercantile Exchange were at 
$2.966 per mmBtu, up 4.2 cents, or a little more than 1 percent.
    The nearby contract peaked at $3.277 in late July, its
highest level since last December.    
    The National Weather Service's six- to 10-day outlook issued
on Tuesday called for normal or below-normal temperatures for
about the eastern half of the nation and mostly above-normal
readings in the western half.
    On the nuclear front, outages on Wednesday totaled 16,800
megawatts, or 17 percent of U.S. capacity, up slightly from
16,600 MW out on Tuesday, 11,400 MW out a year ago and a
five-year outage rate of about 12,800 MW. 
    The U.S. Energy Information Administration last week said
domestic gas inventories rose the prior week by 67 billion cubic
feet to 3.496 trillion cubic feet. 
    Most traders viewed the build as neutral, noting it was
above Reuters poll estimates for a 64-bcf gain, but below last
year's rise of 89 bcf and the five-year average increase for
that week of 73 bcf.
    Storage now stands 320 bcf, or 10 percent, above the same
week in 2011 and 278 bcf, or 9 percent, above the five-year
    (Storage graphic:     
    Record heat this summer has kept weekly storage builds below
the seasonal norm in 20 of the last 21 weeks and helped trim a
huge storage surplus to last year from its late-March peak near
900 bcf.
    But stocks are still at record highs for this time of year
and hovering at a level not normally reached until the second
week of October. The surplus offers a huge cushion that can help
offset any spikes in demand or Gulf Coast supply disruptions
from storms.
    Traders said autumn injections are poised to pick up as
weather loads fade, with early injection estimates for this
week's report ranging from 69 bcf to 81 bcf versus a
year-earlier build of 104 bcf and the five-year average increase
for the week of 76 bcf.           
    Concerns remain that the inventory overhang will pressure
prices this autumn if storage caverns fill to near capacity and
back more natural gas into a well-supplied market.

    Drilling for natural gas has been in a nearly steady decline
for the last 11 months, but the gas-directed rig count rose last
week by six to 454, Baker Hughes data showed on Friday. The
tally hit a 13-year low the previous week. 
    While pure gas drilling has become largely uneconomical at
current prices, gas produced from more-profitable shale oil and
shale gas liquids wells has kept output stubbornly high.
    (Rig graphic:    

 (Editing by Sofina Mirza-Reid)

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