UPDATE 1-US gas futures down 4 pct after brief dip to 3-mth low

Wed Jan 2, 2013 10:09am EST
 
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* Front month sinks overnight to lowest mark since Sept.
    * Long-term weather outlooks trending milder
    * Coming up: EIA oil, gas data Friday


    By Eileen Houlihan
    NEW YORK, Jan 2 (Reuters) - U.S. natural gas futures slid
nearly 4 percent early 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.
    Traders attributed the trading range of more than 30 cents,
or 9 percent, to an algorithmic, or electronic computer-driven,
trade.
    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.
    "Overnight natural gas futures cratered slightly more than
30 cents in what was in all likelihood a 'fat finger' error. The
prompt contract rebounded in heavy volume as traders weighed the
next couple months of winter heating needs against the record
storage levels that overhang the market," said Addison Armstrong
senior director of market research for Tradition Energy.
    As of 9:42 a.m. EST (1442 GMT), front-month February gas
futures on the New York Mercantile Exchange were at $3.23
per million British thermal units, down 12.1 cents, or near 4
percent.
    The contract fell as low as $3.05 overnight, the lowest mark
for a spot contract since late September.
    Cash market gas for Thursday delivery at the NYMEX benchmark
Henry Hub in Louisiana was heard early down 13 cents
at $3.30 on volume near 501 million cubic feet.
    Early deals were done at 1 cent over the front-month
contract, even with deals done early Monday.
    Gas on the Transco pipeline at the New York citygate was heard early down nearly $7 at a $10 average on
volume near 170 mmcf.
    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 Energy Information Agency (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 declined for more
than a year, with gas rigs down 54 percent since peaking at 936
in October 2011. 
    
  
    
    The gas rig count is hovering just above a 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.