U.S. natgas futures extend gains despite milder weather outlook

Tue Jan 22, 2013 9:27am EST
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* Front month well above recent 3-month spot low
    * Above-normal nuclear outages, near-term cold support
    * Record production, long-term mild weather to limit gains

    By Eileen Houlihan
    NEW YORK, Jan 22 (Reuters) - U.S. natural gas futures edged
higher early on Tuesday, extending gains for the seventh time in
eight sessions amid cold near-term weather and above-normal
nuclear power plant outages.
    But with milder weather on tap in longer-term outlooks,
record high production and bloated inventories, most traders
expect the upside to be limited.
    As of 9:18 a.m. EST (1418 GMT), front-month February natural
gas futures on the New York Mercantile Exchange were at
$3.60 per million British thermal units, up 3.4 cents, or just
under 1 percent.
    The front month contract is up more than 15 percent in the
past seven sessions, after falling in early January to $3.05, a
contract low and the lowest mark for a spot contract since late
    NYMEX floor trading and other financial markets were closed
on Monday for the U.S. Martin Luther King holiday.
    Forecaster MDA Weather Services called for much-below-normal
temperatures for most of the eastern half of the nation in its
one to five-day outlook, but the forecast switched to
above-normal readings for the East in its six to 10-day outlook.
    The latest National Weather Service six-to-10-day forecast 
issued on Monday agreed, with above-normal readings stretching
across the eastern third of the nation and across the South
through Texas, with normal or below-normal temperatures confined
to the West.
    Nuclear outages totaled 10,600 megawatts, or 11 percent of
U.S. capacity, up from 9,100 MW out on Friday, 9,500 MW out a
year ago and a five-year average outage rate of about 8,400 MW.
    Last week's gas storage report from the U.S. Energy
Information Administration showed inventories fell the prior
week by 148 billion cubic feet, above industry expectations for
a 136-bcf draw. 
    Declines have beat industry expectations for the past three
weeks, with the data reflecting what could be some permanent
underlying growth in demand this year as utilities switch from
coal to cheaper gas for power generation.
    Despite the large draws, storage remains at 3.168 trillion
cubic feet, about 4 percent below year-ago levels, but more than
11 percent above the five-year average.

    Inventories started the heating season in early November at
3.929 tcf, the fourth straight year when inventories have headed
into the heating season at an all-time peak.
    Early withdrawal estimates for this week's storage report
range from 122 bcf to 147 bcf, well below the 162 bcf pulled
from inventory during the same week last year and the five-year
average decline for that week of 176 bcf.
    Baker Hughes data on Friday showed the gas-directed rig
count had fallen by 5 to 429, its second straight weekly loss.
    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.

    But the EIA also said last week that it expected gas output
in 2013 to rise to 69.84 bcf per day, the third straight annual