December 4, 2012 / 9:08 PM / 5 years ago

UPDATE 3-US natgas futures end down on mild weather, high supply

* Mild weather this week pressures prices
    * Very high storage, production also weigh on sentiment
    * Cooler outlook for next week limits downside
    * Coming Up: Reuters weekly natgas storage poll Wednesday

    By Joe Silha
    NEW YORK, Dec 4 (Reuters) - Front-month U.S. natural gas
futures ended lower on Tuesday for the fourth time in five
sessions, undermined by record high supplies and mild weather
over much of the United States this week that has slowed overall
    "The price drivers remain the same, warm weather forecasts
and nuclear generation coming back online," Gelber & Associates
analyst Aaron Calder said in a report.
    But Calder noted the forecasts, while still above normal,
are less extreme in the extended outlook than the much-above
normal temperatures seen this week.
    While high nuclear plant outages helped lift demand for gas
last month, the total at about 15,000 megawatts has dropped
sharply over the last week as units return from autumn
    Gas-fired plants are typically used to cover any shut
nuclear units, but traders said lighter loads due to milder
weather have reduced the need for replacement generation.
    The front-month contract, which hit a 13-month high of
$3.933 per million British thermal units 10 days ago, posted a
modest gain on Monday, rebounding from a technically overs old
condition after sliding nearly 9 percent last week in its
biggest weekly price drop in five months.
    Without more cold to lift demand, most traders agree any
upward move in prices will be difficult, particularly with
inventories still at record highs for this time of year and
production flowing at or near an all-time peak.
    Front-month gas futures on the New York Mercantile
Exchange ended down 5.2 cents, or 1.4 percent, at $3.539 per
mmBtu after trading in a range of $3.525 to $3.611.
    MDA Weather Services expects temperatures in the Northeast
and Midwest, key gas-consuming regions, to be above to
much-above normal this week. The private forecaster sees cooler
conditions, particularly for the Midwest, next week before
readings moderate again to normal or slightly above normal.

    Data last week from the U.S. Energy Information
Administration showed domestic gas inventories for the week
ended Nov. 23 rose by 4 billion cubic feet to 3.877 trillion
cubic feet.
    The build was a surprise to most traders who expected a net
decline of 12 bcf, according to a Reuters poll.

    Traders expect storage in Thursday's report to drop below
year-ago levels for the first time in 13 months.
    Withdrawal estimates range from 51 bcf to 90 bcf, with most
in the high-60s. Stocks fell 14 bcf during the same week last
year. The five-year average for that week is a 51 bcf decline.
    While a huge inventory surplus relative to a year ago -
which peaked in early April at nearly 900 bcf - has been almost
wiped out, storage is still at record highs for this time of
year and offers a comfortable cushion to meet any winter spikes
in demand or unexpected disruptions in supply.
    Stocks hit an all-time high of 3.929 tcf in early November.
This is the fourth straight year that gas inventories have
headed into the heating season at a record peak.
    Baker Hughes Inc data on Friday showed the
gas-directed rig count fell by four last week to 424, just above
the 13-1/2-year low of 413 posted three weeks ago.

    Drilling for natural gas has mostly been in decline for the
last year, with gas rigs down nearly 55 percent since peaking
last year at 936 in October. The steep slide has stirred
expectations that producers might curb record output, but so far
production has not shown any significant signs of slowing.
    The associated gas produced from shale oil and shale gas
liquids wells has kept dry gas flowing at or near a record pace.
    EIA data on Friday showed gross natural gas production in
September rose to a record high of 73.05 billion cubic feet per
day, eclipsing the previous record of 72.74 bcfd set in January.

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