February 4, 2013 / 2:34 PM / 5 years ago

U.S. natgas futures slip early on milder weather forecasts

* Front month remains above recent 3-month low
    * Mild weather set to return to eastern United States
    * Nuclear outages running above normal levels

    By Eileen Houlihan
    NEW YORK, Feb 4 (Reuters) - U.S. natural gas futures slid
early Monday, pressured by expectations for reduced heating
demand from milder weather forecast for the eastern half of the
nation in the coming days.
    But with some near-term cold in the Northeast and
above-normal nuclear power plant outages, some traders remained
cautious of more downside.
    As of 9:22 a.m. EST (1422 GMT), front-month March natural
gas futures on the New York Mercantile Exchange were at
$3.281 per million British thermal units, down 2 cents, or less
than 1 percent.
    The front month contract hit a 6-1/2-week high of $3.645 two
weeks ago after hitting a more than three-month low of $3.05 in
early January. 
    The latest National Weather Service six to 10-day forecast
issued on Sunday called for above-normal readings for a little
more than the eastern half of the country, with below-normal
temperatures across the West.
    Nuclear outages totaled 8,500 megawatts, or 8 percent of
U.S. capacity, up from 6,200 MW out on Friday and a five-year
outage rate of about 7,600 MW, but below the 10,500 MW out a
    Last week's gas storage report from the U.S. Energy
Information Administration showed domestic gas inventories fell
the prior week by 194 billion cubic feet, below industry
expectations for a 206-bcf draw. 
    Most traders viewed the decline as bearish, noting it was
below market expectations for the first time in five weeks.
    But others noted the draw was above the year-ago drop of 149
bcf and the five-year average draw of 178 bcf.
    Storage now stands 202 bcf, or about 7 percent, below last
year's levels, but 304 bcf, or more than 12 percent, above the
five year-average.

    Early withdrawal estimates for this week's inventory report
range from 127 bcf to 173 bcf, well above the 94 bcf pulled from
storage during the same week in 2012, but in line with the
five-year average decline for that week of 165 bcf.    
    If drawdowns for the rest of winter match the five-year
average, inventories will end March at 2.032 tcf, about 18
percent above normal but 18 percent below last year, when stocks
finished a very mild heating season at a record-high 2.48 tcf.
    Baker Hughes data on Friday showed the gas-directed
drilling rig count fell for the third time in four weeks,
dropping by six to 428. 
    While the gas rig count is hovering not far above the 
13-1/2-year low of 413 hit about three months ago, production
has shown no significant sign of slowing.

    EIA estimates that marketed gas output in 2013 will hit a
record high for the third straight year.

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