UPDATE 3-Cold forecast drives U.S. natgas futures up for 2nd day
* Coal switching, nuclear plant outages lend some support * Cold trend may continue through most of March * High inventories, record production limit upside By Joe Silha NEW YORK, Feb 25 (Reuters) - Front-month U.S. natural gas futures, shrugging off concerns about high supplies, ended higher on Monday for a second straight session amid expectations that chilly weather forecasts for most of the next two weeks should increase heating demand. Despite the two-session run up, traders said gas prices were still cheap enough to draw support from some utilities switching away from more expensive coal for power generation. Hefty nuclear plant outages this week, running at about 15,000 megawatts, were also boosting demand for gas and underpinning prices. Gas-fired units are typically used to offset shut nuclear generation. Front-month March gas futures on the New York Mercantile Exchange, which expire on Tuesday, ended up 12.3 cents, or 3.7 percent, at $3.414 per million British thermal units, after trading between $3.32 and $3.422. The front contract gained 4.4 percent last week. "The (price) surge was in response to very cold updates to the weather forecasts which predicted what might be the coldest March temperatures since 1960," Gelber & Associates analyst Aaron Calder said in a report, noting computer model runs turned much colder over the weekend. Technical traders on Monday noted the nearby contract gapped higher on the open and closed above near resistance at the 40-day moving average in the $3.33 area. While Monday's strong settle could point prices higher, most chart watchers were looking for a close above next resistance at the 100-day moving average in the $3.46 area for confirmation. Commodity Weather Group, a forecaster, said a blocking pattern will keep cold-prevailing weather through the 11-to-15-day time frame, with one computer model trending colder for the second half of March. But even if March turns out cold, most traders see only limited upside potential for prices, with winter soon drawing to a close, gas inventories still high and production flowing at or near an all-time peak. GAS DRILLING GAINS, OUTPUT FAILS TO SLOW Baker Hughes data on Friday showed the gas-directed drilling rig count rose last week for the first time in four weeks, climbing by seven to 428. Early withdrawal estimates for Thursday's inventory report range from 120 to 171 bcf. That would be above the 106 bcf pulled from storage during the same week in 2012 and above the five-year average decline for that week of 118 bcf. If drawdowns for the rest of winter match the five-year average, inventories will end March at 2.089 tcf, about 21 percent above normal but 16 percent below last year, when stocks finished a very mild heating season at a record-high 2.48 tcf.
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