NEW YORK, Oct 25 (Reuters) - U.S. natural gas futures, backed by cold weather for the next few days, edged higher for the third time this week on Friday, but a milder outlook for later next week and into early November helped limit the upside.
The front-month contract, which was down 2.9 percent so far this week, has been struggling, with investors torn between the near-term cold shot that has kicked up heating demand and the milder outlook into early November that should slow usage.
After a few more days of below-normal temperatures in the Midwest and East, readings were expected to trend milder and stay that way into early November.
Some traders had doubts about the potential upside for prices at least until more winter-like weather was sustained, noting inventories have climbed to comfortable levels and production was still flowing at or near a record-high pace.
At 8:55 a.m. EDT (1255 GMT), front-month November gas futures on the New York Mercantile Exchange, which expire on Tuesday, were up 2.5 cents at $3.654 per million British thermal units, after trading between $3.593 and $3.664.
The front contract slid on Thursday to a two-week low of $3.545 after a bearish weekly inventory report, then bounced back and settled up a penny.
Chart watchers noted the nearby contract has slipped into the $3.50s several times this week, only to be propped up by buying, marking that area as decent technical support.
MDA Weather Services expected chilly temperatures to dominate the eastern half of the nation for the next five days, with below-normal readings stretching from the northern Plains to the Southeast. But the forecaster noted the six-to-15-day outlook continued to trend warmer, particularly for the Midwest.
Many traders viewed Thursday’s 87 billion cubic feet weekly inventory build as bearish, noting it came in above the Reuters poll estimate of 79 bcf and well above last year’s increase of 64 bcf and the five-year average gain for that week of 67 bcf.
U.S. Energy Information Administration data showed total domestic gas inventories last week stood at 3.741 trillion cubic feet, 2.4 percent below last year’s record highs at that time, but 2.1 percent above the five-year average.
The storage outlook for next week was more supportive. Early injection estimates ranged from 20 bcf to 43 bcf. That would be well below the 66 bcf build seen during the same year-ago week and the five-year average increase of 57 bcf for that week.
Traders awaited the next Baker Hughes Inc drilling rig report on Friday. The gas rig count has increased in 10 of the last 17 weeks, stirring talk that new pipelines and processing plants may be encouraging producers to pump more gas into an already well-supplied market.
The EIA still expects U.S. gas production in 2013 to hit a record high for the third straight year.
Nuclear plant outages on Friday totaled 17,382 megawatts, or about 18 percent of U.S. capacity. That was up from Thursday’s total of 17,187 MW, but below the 27,569 MW out one year ago and the five-year average outage rate of 22,068 MW.