April 22, 2013 / 1:57 PM / in 5 years

UPDATE 3-U.S. natgas futures end lower, 1st drop in 5 sessions

* Milder weather expected next week seen slowing demand
    * Nuclear power plant outages still above average
    * Stock-building season off to a slow start

    By Joe Silha
    NEW YORK, April 22 (Reuters) - U.S. natural gas futures
ended lower on Monday for the first time in five sessions,
undermined by milder weather forecasts that should finally slow
heating demand after a few more days of cold weather.
    Cold late-winter weather, a chilly spring and above-average
nuclear plant outages put a huge dent in gas inventories that
were at a record high in November. This has lifted price
expectations for this year.    
    The front contract, which gained 4.4 percent last week in
its ninth straight weekly rise, is up 40 percent since
    But with weather expected to turn milder soon and slow space
heating needs, concerns are growing that the market may be ripe
for a pullback.
    "We had no (price) movement on Friday which may have been a
signal that the up trend was running out of steam. Sooner or
later winter is going to be over," said Tom Saal, senior vice
president at INTL FCStone in Miami.
    Front-month gas futures on the New York Mercantile
Exchange ended down 14.1 cents, or 3.2 percent, at $4.267 per
million British thermal units after stalling overnight at
$4.397, just below Thursday's 21-month high of $4.429.    
    Traders noted that gas prices have climbed to levels that
should dampen demand by prompting more utilities to switch back
to cheaper coal for power generation. High prices may also tempt
producers to turn on more wells, increasing supply.    
    Record growth in futures open interest that has accompanied
recent price gains has also raised concerns investors with long
positions may rush to take profits when moderating spring
temperatures finally slow heating load.
    After one last cold push this week, forecaster Commodity
Weather Group expects the weather pattern for the six- to 15-day
range to shift to milder, with seasonal or above-seasonal
readings likely to dominate most of the country.

    U.S. Energy Information Administration data last week showed
total domestic gas inventories rose by 31 billion cubic feet to
1.704 trillion cubic feet. 
    Most traders viewed the build as supportive for prices,
noting it came in below the Reuters poll estimate of 34 bcf and
below the five-year average increase for that week of 39 bcf.
    The season's first injection, which came about three weeks
later than usual, widened the storage deficit relative to the
five-year average by 8 bcf, leaving stocks at 74 bcf, or 4
percent, below that benchmark.
    Chilly weather this month is expected to continue to slow
inventory builds and drive stocks further below the five-year
average for the next couple of weeks.
    Early injection estimates for Thursday's EIA report range
from 19 to 48 bcf, versus a 43-bcf build during the same week
last year and a five-year average rise for that week of 50 bcf.

    Baker Hughes data on Friday showed the gas-directed
rig count rose last week by two to 379. Two straight weekly
gains have stirred expectations that higher gas prices may be
tempting producers to bring on more supply. The gas rig count
posted a 14-year low of 375 two weeks ago. 

    Drilling for natural gas has mostly been in decline for the
past 18 months. The count is down about 60 percent since peaking
in 2011 at 936, but so far production has not slowed much from
the record high hit last year.

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