November 19, 2013 / 3:28 PM / 4 years ago

UPDATE 3-U.S. natgas futures end down for 2nd day despite cold

* Cold forecast seen lifting demand, limiting downside

* Comfortable storage, record production weigh on sentiment

* Coming up: Reuters weekly natgas storage poll Wednesday

By Joe Silha

NEW YORK, Nov 19 (Reuters) - U.S. natural gas futures reversed course and ended lower on Tuesday, as early buying on colder weather forecasts for later this week and next week was offset by sellers noting that upside momentum seemed to have stalled this week.

“It (the sell-off) may be a little technical follow-through after yesterday, but it’s on light volume and I wouldn’t attribute a lot to it. The market really wants to see some cold with staying power, and that’s not clear right now,” said Patrick Saunders, analyst at Albans Energy in Houston.

Front-month gas futures on the New York Mercantile Exchange ended down 6.1 cents, or 1.7 percent, at $3.556 per million British thermal units after trading between $3.551 and $3.647.

The nearby contract, which hit a 3-1/2-week high of $3.705 on Monday then closed lower on profit taking ahead of chart resistance, is down 2.8 percent so far this week. It had gained a total of 4.2 percent in the previous two weeks.

Traders said weaker cash prices also prompted some selling, particularly with computer weather models constantly changing the temperature outlook for early December.

While MDA Weather Services expects below-normal or much below-normal temperatures to dominate the eastern two-thirds of the nation in its six- to 10-day outlook, the forecaster did note a little less cold in the 11- to 15-day time frame.

In the ICE cash market, prices for Wednesday delivery at Henry Hub , the benchmark supply point in Louisiana, slid 9 cents to $3.62 though early differentials firmed to 1 cent over NYMEX from a 3-cent discount on Monday.

Gas on the Transco pipeline at the New York citygate slipped 4 cents to $3.76 despite the chilly Wednesday outlook.

Technical traders said the front month needed a close above resistance in the low $3.70s to set the stage for more upside.

But with stockpiles at comfortable levels and production flowing at a record-high pace, many traders remain skeptical of further gains unless the cold weather is sustained.

Traders and analysts are expecting the season’s first inventory draw when the U.S. Energy Information Administration releases its weekly storage report on Thursday.

Withdrawal estimates range from 15 billion to 42 billion cubic feet, with most in the 30 bcf area. That would compare with a 36 bcf decline in the year-earlier week and a five-year average drop of 2 bcf for that week.

EIA reported last week that total domestic gas inventories stood at 3.834 trillion cubic feet, just 2 percent below last year’s record highs at that time, but 1.5 percent above the five-year average.

Baker Hughes drilling data showed the gas rig count has risen in 13 of the last 21 weeks. A rising rig count can stir talk that new pipelines and processing plants may be encouraging producers to hook up more wells and pump more gas into an already well-supplied market.

With over a billion cubic feet per day of new gas flowing from Marcellus shale this month and more supply likely coming, many traders agreed that temperatures this winter will have to stay cold if prices are to avoid testing the $3 mark.

The EIA expects U.S. gas production in 2013 to hit a record high for the third straight year, then climb again in 2014.

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