UPDATE 3-U.S. natgas futures end at 3-1/2-month low on EIA data
* Forecasts turn warmer for northern tier states * EIA stock build beats five-year average for 4th straight week * Coming up: Baker Hughes rig data, EIA gross production data Friday By Joe Silha NEW YORK, June 27 (Reuters) - U.S. natural gas futures ended down sharply on Thursday, with the front contract posting a 3-1/2-month low after a government report showed another above-average weekly inventory build. The U.S. Energy "The market got destroyed today after the storage number. Builds have been coming in at the high end of consensus which plays into a bearish narrative," said Jacob Correll, analyst at Schneider Electric in Kentucky. Inventory builds have exceeded the five-year average for the last four weeks and prompted some analysts to raise estimates for peak storage this year. On average, analysts expect stocks to top out this year at 3.767 tcf, according to a Reuters poll released on Wednesday. If the forecast holds, it would be the first time in five years that gas inventories do not start winter at a record high. Front-month gas futures on the New York Mercantile Exchange ended down 15.5 cents, or 4.1 percent, at $3.582 per million British thermal units after sinking to $3.556 after the EIA report, the lowest for the near contract since early March. The front contract has lost ground in five of the last six sessions, dropping nearly 10 percent. Traders said the sharp narrowing of the 2014 March-April backwardation, which at 7.7 cents on Thursday was the lowest settle in four months, reflected expectations that inventories will be very comfortable heading into next winter. That spread, closely watched by traders, peaked this year at nearly 45 cents. Many traders remain skeptical of the upside without a sustained, broad-based heat wave, particularly with inventories comfortable and gas production still at or near a record high. That spread peaked this year at nearly 45 cents in mid-April. Heat remains focused in the West for the next two weeks, but temperatures were also expected to trend warmer for the Northeast and northern tier states during the period, according to forecaster MDA Weather Services. Readings in the Midwest and Southeast were expected to average below normal. The weekly inventory build cut 16 bcf from the shortfall versus the five-year average, leaving stocks just 31 bcf, or 1 percent, below that benchmark. Early injection estimates for next week's report range from 51 bcf to 75 bcf, versus a 41-bcf build during the same week last year and a five-year average rise for that week of 71 bcf. Traders were waiting for the next Baker Hughes drilling rig report on Friday. Last week's data showed the gas rig count slid to an 18-year low. Despite the drop in gas drilling, EIA expects gas output in 2013 to post a record high for a third straight year.
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