UPDATE 3-US natgas futures end up, cold drives front to 19-mth high

Wed Mar 27, 2013 3:38pm EDT
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* Nuclear outages still running above normal
    * Chilly weather to continue into early April
    * Coming up: EIA natgas storage data, Baker Hughes rig data

    By Joe Silha
    NEW YORK, March 27 (Reuters) - U.S. natural gas futures
ended higher on Wednesday for a second straight day, with
bullish inventory expectations and chilly weather forecasts for
at least the next week driving the new front contract to its
highest in about 19 months.
    Cold late-season weather has triggered strong demand for
heating which put a huge dent in inventories, while
above-average nuclear plant outages have increased gas used for
power generation and also helped tighten the market.    
    "Overall, current fundamentals remain supportive for natural
gas prices as heating-related demand is likely to continue for
at least another week, maybe two," Energy Management Institute's
Dominick Chirichella said in a report, also adding that
Thursday's weekly inventory report was expected to be bullish. 
    Front-month gas futures on the New York Mercantile
Exchange ended up 7.7 cents, or 1.9 percent, at $4.068 per
million British thermal units after climbing late to $4.103, the
highest since early September 2011.
    Despite the recent run, some traders said the market may be
vulnerable to a sharp, technical sell-off, noting front-month
futures prices have rallied near 30 percent since mid-February.
    The strong move up has been accompanied by decent volume and
a 215,000-lot gain in open interest, bullish signs that indicate
new buying has fueled much of the upside but could eventually
lead to a sharp move lower when longs decide to cash out.
    Futures-only OI hit a record high for the eighth straight
session on Tuesday, climbing to 1,407,669 contracts.   
    Traders said some players may be buying ahead of the
three-day weekend, noting NYMEX floor and electronic trading
will be closed Friday for the Good Friday holiday.
    But with production still flowing at or near a record peak
and milder spring weather likely to soon slow demand, many
traders remain skeptical of further upside.
    They note that gas prices above $4 should curb demand by
prompting some utilities to use more coal to generate power and
increase supply by encouraging producers to turn on more wells.
    Commodity Weather Group said the six-to-10-day outlook
turned colder overnight for the Midwest, East and South and
still expects seasonal to cool temperatures for the eastern half
of the nation in the 11-to-15-day time frame.    
    U.S. Energy Information Administration data last week showed
total gas inventories for the week ended March 15 had dropped to
1.876 trillion cubic feet but were still 162 billion cubic feet,
or 9 percent, above the five-year average. 

    Traders and analysts expect that surplus to shrink sharply
in Thursday's inventory report, with most looking for an 87 bcf
withdrawal, according to a Reuters poll. 
    Inventories rose an adjusted 45 bcf in the same week last
year, while storage normally gains 6 bcf for that week.
    Stocks will likely end the heating season near the 1.73-tcf
average for March 31, or about 30 percent below last winter's
record high finish of 2.48 tcf. A Reuters poll in mid-January
put the consensus end-winter inventory forecast at about 2 tcf.
    Total gas pulled from storage so far this winter is about
2.050 tcf, roughly 580 bcf, or 39 percent, more than the same
time last year and nearly 5 percent above normal. 
    Traders were waiting for the next Baker Hughes 
drilling rig report, expected a day early this week on Thursday
due to the Friday holiday. The gas-directed drilling rig count
has fallen in three of the last four weeks and is hovering just
above the 14-year low of 407 posted two weeks ago.

    Despite the rig decline over the last year, production has
not slowed much, if at all, from the record high hit last year.