UPDATE 3-Cold forecast drives U.S. natgas futures up for 2nd day

Mon Feb 25, 2013 3:12pm EST
 
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* 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.