UPDATE 3-Front U.S. natgas futures end up, backed by small stock build

Thu Apr 25, 2013 3:40pm EDT
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* Weekly EIA stock build falls short of expectations
    * Weather outlooks mixed for remainder of April, early May
    * Nuclear power plant outages remain below average
    * Coming up: Baker Hughes rig data, CFTC trade data Friday

    By Joe Silha
    NEW YORK, April 25 (Reuters) - Front-month U.S. natural gas
futures pulled back from early highs but still managed to eke
out a small gain on Thursday, underpinned by a
smaller-than-expected weekly inventory build that was well under
the historical average for that period.
    It was the first gain for the front month in four sessions. 
    Data from the U.S. Energy Information Administration showed
total domestic gas inventories rose last week by 30 billion
cubic feet to 1.734 trillion cubic feet. That
was below the Reuters poll estimate of 32 bcf and well below the
five-year average increase for that week of 50 bcf.    
    "The (EIA build) number was slightly bullish - it missed
expectations by 2 bcf and it was below the seasonal average - 
but people are looking forward to storage injections in early
May when we should see much bigger builds as temperatures
moderate," said Gelber & Associates analyst Aaron Calder.
    Front-month May gas futures on the New York
Mercantile Exchange, which expire on Friday, shot up 8.5 cents,
or 2 percent, to $4.251 per million British thermal units right
after release of the EIA data at 10:30 a.m. EDT (1430 GMT). But
the front contract ended the session up just 0.1 cent at $4.167.
    Cold late-winter weather, a chilly spring and above-average
nuclear plant outages put a huge dent in record gas inventories
and helped drive prices up 40 percent since mid-February.
    But despite lingering cold this week and prospects for
another light storage build in next week's report, some said the
upside for gas futures seemed to be stalling after nine straight
weeks of gains, particularly with milder weather on the horizon.
    The front contract, which hit a 21-month high of $4.429 late
last week, had lost 5.5 percent in the previous three sessions,
breaking and closing below trendline support on Wednesday.
    Chart traders said the break down could be a bearish sign
and set up a test of better support in the $4.12-4.13 area, the
20-day moving average and the 23.6 Fibonacci retracement of the
move up from the $3.125 February low to last week's peak.
    Matt Smith, commodity analyst at Schneider Electric, pegged
major support in the $3.93 area, which is the 38.2 Fibonacci
measurement and the front-month high in 2012.
    Some said a close below that level could herald the end of
the bull market, at least until hotter weather kicks up air
conditioning loads.
    Forecaster Commodity Weather Group expects temperatures in
the central U.S. and Southeast to cool to below normal next
week, then moderate to mostly seasonal levels in the 11- to
15-day time frame that should again slow demand.
    This week's storage injection was only the second of the
stock building season, which started about three weeks later
than expected due to an unusually cold spring.
    The weekly build widened the deficit relative to last year
by 13 bcf to 807 bcf, or 32 percent below last year's record
highs at that time. It also increased the shortfall versus the
five-year average by 20 bcf, leaving stocks at 94 bcf, or 5
percent, below that benchmark.

    Chilly weather this week is expected to continue to slow
inventory builds and drive stocks further into deficit relative
to the five-year average in the next EIA report.
    Early injection estimates for next week's report range from
15 to 40 bcf versus a 31-bcf build during the same week last
year and a five-year average rise for that week of 67 bcf.
    Traders were waiting for the next Baker Hughes 
drilling rig report on Friday. The gas-directed drilling rig
count rose slightly last week for the second straight week,
stirring expectations that higher gas prices may be tempting
producers to hook up more wells. 
    While the gas rig count is hovering just above a 14-year low
of 375 posted two weeks ago, production so far has not slowed
much, if at all, from the record high hit last year.