UPDATE 3-Milder trend weakens U.S. natgas futures for 4th day
* Milder U.S. weather next week expected to slow demand * Nuclear outages still running above normal, lend support * Big inventory draw expected Thursday also limits downside * Coming Up: EIA, Enerdata natgas storage data Thursday By Joe Silha NEW YORK, April 3 (Reuters) - Front-month U.S. natural gas futures ended lower on Wednesday for a fourth straight day, as milder weather forecasts for next week raised expectations that heating demand was finally poised to slow. Cold late-winter temperatures and above-average nuclear plant outages helped drive futures prices up nearly 30 percent since mid-February, with the front contract posting a 19-month high $4.121 per million British thermal units just last week. But despite chilly weather this week, traders expect milder spring readings to soon slow demand and lightly pressure prices, particularly with production still flowing at robust levels. Gelber & Associates analyst Aaron Calder said in a report that the recent rally "was based on much colder than expected temperatures. Now that temps being forecasted are failing to live up to that, prices are receding a bit." But he added, "Drawing down storage before the start of the injection season takes the fear (of) storage overflows out of the market, and limits the downside potential of the contract." Front-month gas futures on the New York Mercantile Exchange ended down 6.9 cents, or 1.7 percent, at $3.90 per mmBtu after trading between $3.897 and $3.985. The front contract had posted gains in six previous weeks but has lost 4.1 percent in the last four sessions. Recent price gains have been accompanied by a near steady climb in open interest, indicating that new buying, not short covering, has fueled much of the upside. Futures-only open interest on Tuesday hit a record high for the 12th straight session, climbing to 1,459,808 contracts. But chart watchers said the market may be vulnerable to a sell-off, noting today's close below near support in the $3.93 area could set off a stampede by new longs looking to cash out. While the Plains and upper Midwest could remain cool next week, MDA Weather Services expects above to much above normal temperatures to stretch from the Gulf Coast to Northeast. Warmth is expected to spread across the South and East by mid-April. ANOTHER STRONG STORAGE DRAW EXPECTED Some traders said expectations for another big storage draw on Thursday may limit further downside temporarily. Traders and analysts polled by Reuters are looking for a 91 billion cubic feet withdrawal when the U.S. Energy Information Administration releases its weekly storage report on Thursday. That would drive stocks below the five-year average for the first time since September 2011. U.S. Energy Information Administration data last week showed total domestic gas inventories as of March 22 had dropped to 1.781 trillion cubic feet, just 61 bcf, or 3.5 percent, above average for that week. Record high inventories at the start of the heating season have been steadily shrinking as cold late-season weather kicked up demand. About 2.15 tcf of gas has been pulled from storage so far this season, or 45 percent more than last year at this time. Stocks usually build slightly at this time of year. The five year average for Thursday's report is a 4 bcf injection. Two more weekly draws will put storage well below normal at the start of the April-through-October injection season. OUTPUT STARTS TO SLOW? EIA data on Friday showed that gross natural gas production in January fell for the second straight month. Output also dropped below year-ago levels for the first time since February 2010, but it's still unclear if recent monthly declines were due to well freeze-offs from the cold or producers curbing dry gas flows because prices were not that attractive. The gas-directed drilling rig count has fallen in four of the last five weeks, slipping last week to a 14-year low of 389. Despite the rig declines over the last year or so, output has not slowed much from the record high hit last year.
© Thomson Reuters 2016 All rights reserved.