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

Wed Apr 17, 2013 3:41pm EDT
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* Front month gains for second day
    * Chilly weather seen continuing through April
    * Nuclear plant outages still above five-year average
    * Coming Up: EIA, Enerdata natgas storage reports Thursday

    By Joe Silha and Eileen Houlihan
    NEW YORK, April 17 (Reuters) - U.S. natural gas futures
ended higher on Wednesday for a second straight day, backed by
chilly weather forecasts for the next two weeks that should
underpin heating demand despite prospects for milder
temperatures next month.
    Front futures have mostly been in an uptrend since
mid-February, rising nearly 35 percent during eight straight
weeks of gains. Chilly March and April weather and above-average
nuclear plant outages helped whittle down record high
inventories and tighten overall supplies.
    Nuclear plant outages have mostly been running above average
and have increased demand for gas-fired replacement power. 
    "Natural gas prices are holding the recent range on a
temperature outlook that appears quite similar to yesterday's
run," Citi Futures analyst Tim Evans said in a report, also
noting some buying ahead of Thursday's weekly inventory report.
    Front-month gas futures on the New York Mercantile
Exchange ended up 5.4 cents, 1.3 percent, at $4.214 per million
British thermal units after trading between $4.146 and $4.244.
    But chart traders noted the market seemed to be struggling
here, with the front contract unable to break above Monday's
20-1/2-month high of $4.29.
    Buyers may be growing cautious as prices near levels that
could slow demand by prompting more utilities to switch from gas
back to coal for power generation and increase supply by
tempting producers to hook up more wells.
    There are also concerns that record growth in futures open
interest that has accompanied recent price gains means there are
a lot of new longs in the market that could rush to take profits
and sell out once temperatures turn milder.
    In its six-to-10-day outlook, MDA Weather Services said
strong cold remains on track to drop into the central United
States, with below or much below normal temperatures expected in
the Plains, Midwest and South. Northeast states will see mostly
seasonal readings during the period.
    The stock-building season is set to get under way, albeit
three weeks later than usual, with Thursday's U.S. Energy
Information Administration storage report expected to show a
build of 34 billion cubic feet, according to a Reuters poll on
    Stocks rose 21 bcf during the same week last year, while the
five-year average rise for that week is 39 bcf.
    Persistent cold in April, particularly in the Midwest, is
likely to keep weekly injections below average for the next few
weeks and drive overall inventories further below the norm for
that time of year.
    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 2.25 tcf, 770 bcf, or
52 percent, more than last year, and 15 percent more than the
normal draw during the heating season.
    Baker Hughes data on Friday showed the gas-directed
rig count rose slightly last week but is still hovering just
above the 14-year low of 375 posted two weeks ago.

    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, 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.