UPDATE 2-U.S. natural gas futures end lower in seesaw session

Thu Dec 6, 2012 3:54pm EST
 
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* EIA weekly inventory withdrawal seen as supportive
    * Prices pull back after strong gains Wednesday
    * Near record-high storage, production weigh on sentiment
    * Coming up: Baker Hughes rig data, CFTC trade data Friday

 (Releads, adds analyst's quote, updates closing prices)
    By Joe Silha
    NEW YORK, Dec 6 (Reuters) - U.S. natural gas futures,
shrugging off an early rally on a supportive inventory report,
ended lower on Thursday, undermined by profit-taking after the
previous day's gain and concerns eastern temperatures will not
be cold enough to stir much demand.
    The U.S. Energy Information Administration report showed
total domestic gas inventories fell last week by 73 billion
cubic feet to 3.804 trillion cubic feet. 
    Traders viewed the withdrawal as supportive, noting prices
briefly shot up after the number came out well above the Reuters
poll estimate of 64 bcf and the five-year average for that week
of 51 bcf. The draw took inventories below year-before levels
for the first time in 13 months.
    "The (EIA) number was positive for prices, but the price run
up yesterday may have been overdone, so the market corrected a
little today," said Tom Pawlicki, analyst at EOXLive in Chicago.
    Pawlicki also noted that if milder temperatures linger next
week in the East, demand could slow in that part of the country.
    Front-month gas futures on the New York Mercantile
Exchange ended down 3.4 cents, or 0.9 percent, at $3.666 per
million British thermal units after posting an intraday high of
$3.748 right after the EIA report.
    The nearby contract, which hit a 13-month high of $3.933 on
Nov. 23, rallied 4.5 percent on Wednesday in its biggest one-day
gain in almost five weeks.
    Prices have seesawed this week with changes in computer
weather predictions, but few traders expect much upside without
more sustained cold to boost heating demand, noting inventories
and production were still running at, or near, record highs.
    Private forecaster MDA Weather Services noted its 11- to
15-day outlook turned colder overnight, but the core of the cold
was focused over the western half of the country.  
    While some traders said the colder weather could lend some
support to prices, others remained skeptical of 10-day and
15-day forecasts, noting computer projections out that far have
not been very reliable lately.
    
    INVENTORIES HOVER NEAR RECORD HIGHS
    The weekly storage draw drove stocks to 33 bcf, or nearly 1
percent, below the same week last year, the first time below
that benchmark since early November 2011. It also trimmed 22 bcf
from the surplus relative to the five-year average, reducing
that total to 168 bcf, or 5 percent.
    (Storage graphic: link.reuters.com/mup44s )          
    While a huge inventory overhang to last year, which peaked
in early April at nearly 900 bcf, has been wiped out, storage is
still near record highs for this time of year and offers a
comfortable cushion to meet any winter spikes in demand or
unexpected disruptions in supply.
    Stocks hit a record high of 3.929 tcf in early November.
This is the fourth straight year that gas inventories have
headed into the heating season at a record peak.
    Storage in next week's report is expected to climb back
above year-before levels, with early estimates ranging from a
build of 2 bcf to a draw of 27 bcf. That would be well short of
the 79 bcf draw during the same week last year, while the
five-year average decline for that week is 113 bcf.
    
    PRODUCTION SHOWS NO SIGNS OF SLOWING  
    Traders were waiting for the next drilling rig report from
Baker Hughes on Friday.
    Drilling for natural gas has mostly been in decline for the
last year, with gas rigs down nearly 55 percent since peaking
last year at 936 in October. 
    (Rig graphic: r.reuters.com/dyb62s)
    The steep slide - the Baker Hughes gas rig count is hovering
just above a 13-1/2-year low - has stirred expectations that
producers might curb record output, but so far production has
not shown any significant signs of slowing.
    The associated gas produced from shale oil and shale gas
liquids wells has kept dry gas flowing at, or near, a record
pace.
    EIA data on Friday showed gross natural gas production in
September rose to a record high of 73.05 billion cubic feet per
day, eclipsing the previous record of 72.74 bcfd set in January.

 (Editing by Maureen Bavdek, Nick Zieminski and Peter Galloway)