U.S. natgas futures down 4 pct after brief dip to 3-mth low

Wed Jan 2, 2013 9:20am EST
 
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* Front month sinks overnight to lowest level since
September
    * Long-term weather outlooks trending milder
    * Coming up: API oil data Thursday, EIA oil, gas data Friday

    By Eileen Houlihan
    NEW YORK, Jan 2 (Reuters) - U.S. natural gas futures slid
about 4 percent early on Wednesday, but recovered from a steep
drop in overnight electronic trade that brought the front month
contract to its lowest mark in over three months.
    Most traders attributed the more than 30-cent, 9-percent
trading range to an algorithmic, or electronic computer-driven
trade.
    But most expect little upside to prices, with long-term
weather outlooks still calling for above-normal temperatures for
much of the nation, curbing heating needs and lessening demand
for gas in winter storage.
    As of 9:12 a.m. EST (1412 GMT), front-month February gas
futures on the New York Mercantile Exchange were at $3.21
per million British thermal units, down 14.1 cents, or more than
4 percent.
    The front-month contract fell as low as $3.05 overnight, a
contract low and the lowest mark for a spot contract since late
September.
    The latest National Weather Service six-to-10-day forecast,
issued on Tuesday, called for above-normal temperatures for a
little more than the eastern half of the nation, with
below-normal readings in the West.
    Nuclear outages totaled just 8,500 megawatts, or 8 percent
of U.S. capacity, up from 6,400 MW out a year ago and a
five-year average outage rate of about 5,000 MW. 
    
    WINTER STORAGE STILL BLOATED
    Last week's EIA gas storage report showed total domestic
inventories fell by 72 billion cubic feet to 3.652 trillion
cubic feet, below market expectations for a 76 bcf draw.
 
    Inventories started the heating season in early November at
an all-time high of 3.929 tcf and are still at record highs for
this time of year, hovering at more than 2 percent above last
year and 13 percent above the five-year average.

    Early withdrawal estimates for this week's report range from
100 bcf to 141 bcf, above the 77 bcf pulled during the same
year-ago week but in line with the five-year average draw of 111
bcf for that week.
    The EIA report will be delayed by one day this week due to
the New Year's Day holiday.
    
    RIGS GAIN, OUTPUT STILL NEAR RECORD
    Baker Hughes data on Friday showed the gas-directed rig
count rose by two to 431, its second straight weekly gain.
 
    But drilling for natural gas has mostly been in decline for
more than a year, with gas rigs down 54 percent since peaking in
at 936 in October 2011. 

    The gas rig count is hovering just above the 13-1/2-year low
of 413 hit seven weeks ago, but so far production has not shown
any significant sign of slowing. 
    The EIA expects gas output in 2013 to rise to a record high
of 69.59 bcf per day, the third straight annual record.