February 27, 2013 / 3:18 PM / 5 years ago

UPDATE 1-Cold drives front U.S. natgas futures up for 4th day

* Cold trend expected to continue through middle of March
    * High inventories, record production limit upside
    * Coming up: Reuters natural gas storage poll Wednesday

    NEW YORK, Feb 27 (Reuters) - Front U.S. natural gas futures
held gains on Wednesday for a fourth straight session, backed by
expectations that chilly weather for much of the country over
the next two weeks will force homeowners and businesses to crank
up their heaters. 
    "There is more cold coming, but we're running out of time
for winter," a Texas-based trader said.
    The front contract rallied 5.6 percent in the prior three
sessions, its biggest three-day run up in six weeks, but traders
said gas remained cheap enough to draw demand from some
utilities switching from higher-priced coal to generate power.  
    In addition, they noted that hefty nuclear plant outages
this week, at more than 16,000 megawatts, were boosting demand
for gas. Gas-fired units are typically used to offset shut
nuclear generation.    
    At 10:00 a.m. EST (1500 GMT), front-month gas futures 
on the New York Mercantile Exchange were up 5.2 cents, or 1.5
percent, at $3.508 per million British thermal units, after
climbing during the morning to a five-week high of $3.511.
    Early cash quotes for Thursday delivery at Henry Hub , the benchmark supply point in Louisiana, gained 2
cents to $3.48 on very light volume of 166 million cubic feet.
The Hub posted an eight-week high of $3.63 a month ago.
    Early Hub differentials weakened slightly to about 4 cents
over NYMEX, from a 6-cent premium on Tuesday.
    Next-day prices on the Transco pipeline at the New York
citygate rose for the first time in five sessions,
climbing 7 cents to $3.85 on the colder outlook for later this
week and early next week.
    Technical traders noted the nearby contract gapped higher
this week and on Wednesday traded above the next resistance
point at the 100-day moving average in the $3.46 area. Most
agreed a strong close above $3.50 could set the stage for a test
of this year's high of $3.645 hit in late January.
    Commodity Weather Group, a forecaster, noted the outlook
through mid-March still favored a cold-prevailing pattern,
particularly for the Midwest, which should translate into decent
heating demand as winter winds down.
    But even if March turns out cold, most traders see only
limited upside potential for prices, with gas inventories still
high, production flowing at or near an all-time peak and milder
spring weather likely just a few weeks away.
    U.S. Energy Information Administration data last week showed
domestic gas inventories of 2.400 trillion cubic feet were 9
percent below last year's record high at that time, but were
still relatively large at 361 billion cubic feet, or 18 percent,
above the five-year average. 
    Withdrawal estimates for Thursday's inventory report range
from 140 bcf to 177 bcf, with most in the mid-160s. Stocks fell
by an adjusted 106 bcf during the same week last year. The
five-year average decline for that week is 118 bcf.
    Most analysts expect storage to end the heating season at
just over 2 tcf, about 16 percent above average but 17 percent
below last winter's record-high finish of 2.48 tcf.

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