November 20, 2013 / 3:43 PM / 4 years ago

UPDATE 3-U.S. natgas futures rise on colder weather forecasts

* Weather seen colder later this week, next week

* Comfortable storage, record production limit upside

* Coming up: EIA natgas storage data due Thursday

By Joe Silha

NEW YORK, Nov 20 (Reuters) - U.S. natural gas futures ended sharply higher on Wednesday as investors reacted to a colder shift in weather forecasts for later this week and next week that should force more homeowners and businesses to turn up the heat.

Forecaster MDA Weather Services said both the six- to 10-day and 11- to 15-day outlooks turned colder overnight, with some much below-normal temperatures expected to stretch from Texas to the Northeast next week.

“The forecasts are calling for below normal temperatures, but I think the market is waiting for real winter weather to show up before it goes much higher,” said Tom Saal, senior vice president at INTL FCStone in Miami.

Front-month gas futures on the New York Mercantile Exchange ended up 11.8 cents, or 3.3 percent, at $3.674 per million British thermal units after trading between $3.549 and $3.681.

The front contract, which hit a 3-1/2 week high of $3.705 on Monday but had lost 2.8 percent in the previous two sessions, is now up 0.4 percent so far this week. It gained 4.2 percent over the previous two weeks.

Technical traders, noting the market still seemed stuck in a range between $3.50 and $3.70, said the front month needed to 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 about further gains unless the cold weather is sustained.

Traders and analysts polled by Reuters on average expect a withdrawal of 33 billion cubic feet when the U.S. Energy Information Administration on Thursday releases its weekly storage report. It would be the season’s first inventory draw.

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 data last week showed total gas inventories had climbed to 3.834 trillion cubic feet, about 2 percent below last year’s record highs at that time, but 1.5 percent above average.

Recent 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.

In the ICE cash market, prices for Thursday delivery at Henry Hub , the benchmark supply point in Louisiana, edged up a penny to $3.63, but early differentials weakened to 2 cents under NYMEX from a 2-cent premium on Tuesday.

Gas on the Transco pipeline at the New York citygate slipped 7 cents to $3.69 on the milder Thursday outlook. Chicago was 3 cents higher at $3.69.

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