U.S. natural gas futures edge higher on technicals, tropics

NEW YORK, Aug 20 (Reuters) - U.S. natural gas futures edged
higher early Monday after three straight losing sessions,
propped up by concerns about rising tropical activity and some
technical buying after an overnight test of support held.
At 9 a.m. EDT (1300 GMT), front-month gas futures on
the New York Mercantile Exchange were up 4.7 cents, or 1.7
percent, at $2.766 per million British thermal units, trading
between $2.686 and $2.776.
The front contract, which hit its high for the year at $3.28
in late July, slid to a seven-week low of $2.685 last Thursday.
It had lost 4 percent in the previous three sessions.
Prices have been struggling over the last three weeks,
slipping about 15 percent so far this month, as temperatures
across the nation moderated.
But despite fairly mild weather this week that should slow
demand, traders, noting two tropical systems in the Atlantic,
said prices were underpinned by concerns about rising storm
activity ahead of the peak of the hurricane season in September.
The U.S. National Hurricane Center gave a tropical wave in
the central Atlantic an 80 percent chance of becoming a tropical
cyclone during the next day or two as it moved west towards the
Lesser Antilles in the eastern Caribbean.
Chart watchers said the market may be poised to break lower,
noting the front month has slipped below support in the $2.70
area for the last three days.
Most agreed a close below $2.70 would set the stage for more
downside. Next support was seen at the 50 percent retracement in
the $2.60 area and then at the up trendline in the $2.50 area
drawn off the April and June lows.
Many traders remain skeptical of the upside, with storage
and production still running at or near record highs.
Most analysts agree that gas prices need to stay between
$2.50 and $3 heading into autumn in order to encourage utilities
to burn gas rather than coal to generate power. A loss of that
demand could lead to larger weekly storage builds and stir
concerns about inventories testing total capacity before winter.
Nuclear plant outages on Monday were running about 700
megawatts below a year ago, slowing the need to use gas-fired
generators to produce electricity.

PRODUCTION HIGH DESPITE RIG DECLINES
Data from Baker Hughes on Friday showed the gas-directed rig
count fell last week by 11 to 484, the 12th drop in 13 weeks and
the lowest since July 1999.
(Rig graphic: r.reuters.com/dyb62s )
The company also reported that horizontal rigs, the type
used to extract oil or gas from shale, fell for the first time
in three weeks, but the count at 1,153 was just 3.3 percent
below the record high of 1,193 set in May.
Dry gas drilling has become largely uneconomical at current
prices, and a 48 percent drop in the gas rig count over the last
10 months has fed expectations that producers were getting
serious about slowing record output.
But drillers have moved rigs to more-profitable shale oil
and shale gas liquid plays, which produce plenty of associated
gas that ends up in the market after processing.
Total dry gas output is still flowing near record highs.

LAGGING STORAGE BUILDS
Data from the U.S. Energy Information Administration on
Thursday showed that gas inventories for the week ended Aug. 10
climbed to 3.261 trillion cubic feet, still a record high for
this time of year.
At 79 percent full, stocks are at levels not normally
reached until the third week of September and offer a huge
cushion that can help offset any weather-related spikes in
demand or Gulf Coast supply disruptions from storms.
(Storage graphic: link.reuters.com/mup44s)
With peak summer heat steadily fading, concerns remain that
the storage overhang could drive prices to new lows later this
summer if inventories climb to levels that test the government's
4.1-tcf estimate of capacity.
Early injection estimates for Thursday's EIA report range
from 33 bcf to 40 bcf versus a year-earlier build of 66 bcf and
the five-year average increase for the week of 53 bcf.

(Reporting by Joe Silha; Editing by Dale Hudson)