U.S. natgas futures extend gains despite milder weather outlook
* 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 September. 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. ANOTHER BIG STORAGE DRAW, BUT STOCKS ABOVE AVERAGE 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. RIGS SLIDE, BUT OUTPUT NEAR RECORD 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 record.
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