UPDATE 3-U.S. natural gas futures end higher in seesaw session

Tue Apr 16, 2013 3:59pm EDT
 
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* Front month hit highest mark since July 2011 on Monday
    * Chilly weather seen continuing through April
    * Nuclear plant outages still above five-year average
    * Coming Up: Reuters natural gas storage poll on Wednesday


    By Joe Silha and Eileen Houlihan
    NEW YORK, April 16 (Reuters) - U.S. natural gas futures
ended higher on Tuesday in a seesaw session with light
profit-taking pressure finally overwhelmed by supportive weather
forecasts that should underpin heating demand through most of
April.
    Front futures have gained ground in eight previous weeks,
climbing nearly 35 percent since mid-February as chilly
late-winter weather and above-average nuclear plant outages
whittled down record high inventories and tightened overall
supplies.
    Despite the near-term chill, some traders have doubts about
the upside, noting new longs piling into the gas market over the
last month have driven futures open interest to record highs and
could leave the market vulnerable to a sharp, profit-taking
sell-off once temperatures turn milder.
    "Everyone's long, so there may not be that many buyers left.
Sure it's cold but that's already priced in, and I don't see the
impetus to drive prices up much further in the near term," a
Houston-based cash trader said.
    Front-month gas futures on the New York Mercantile
Exchange ended up 2.3 cents at $4.16 per million British thermal
units after trading between $4.084 and $4.194. The front contact
posted a 20-1/2-month high of $4.29 on Monday.
    Traders also note that gas prices are at, or near, levels
that could slow demand by prompting more utilities to switch
back to coal for power generation and to increase supply by
tempting producers to hook up more wells.
    MDA Weather Services said that the six- to 10-day outlook
continued to show plenty of cold, with well below normal
temperatures expected for the Plains, Midwest and South, while
mid-Atlantic states will see below normal readings. The West
will be warm during the period.
    
    INJECTION SEASON SET FOR SLOW START
    The stock-building season is set to get underway, with
Thursday's U.S. Energy Information Administration storage report
likely to show a build of between 15 billion and 40 billion
cubic feet.
    Stocks rose 21 bcf during the same week last year, while the
five-year average rise for that week is 39 bcf.
    But persistent cold in April, particularly in the Midwest,
is likely to keep weekly injections below average and drive
overall inventories further below the five-year average.
    EIA data last week showed that total domestic gas
inventories had fallen to 1.673 trillion cubic feet, 32 percent
below last year's record highs for the period and 4 percent
below average. 

    Winter withdrawals this year totaled about 2.25 tcf, roughly
770 bcf, or 52 percent, more than last year, and 15 percent more
than the normal draw during the heating season.
        
    RIG COUNT CLIMBS, WHEN WILL OUTPUT SLOW?
    Baker Hughes data on Friday showed the gas-directed
rig count rose last week by two to 377, raising concerns that
higher gas prices may be stirring more dry gas drilling. 

    Drilling for natural gas has mostly been in decline for the
past 18 months. The count is down about 60 percent since peaking
in 2011 at 936 and is hovering just above the 14-year low posted
two weeks ago, but so far production has not slowed much from
the record high hit last year. 
    EIA recently trimmed its estimate for domestic gas
production growth in 2013, but still expects output to rise 0.3
percent from 2012's record levels.