NEW YORK (Reuters) - Front-month U.S. natural gas futures ended higher on Friday for a fifth day but other months lost ground, pressured by forecasts for fairly mild U.S. weather next week and profit taking after the nearby contract posted a fresh 2012 high in overnight trade.
An unexpectedly light weekly inventory build and some cool weather this week helped drive the nearby contract up nearly 4 percent on Thursday. For the week, the contract gained 6.3 percent as cold weather this week stirred decent heating demand.
Nuclear plant outages, roughly averaging about 20,000 megawatts this week, also helped underpin prices as they added as much as 600 million cubic feet, or nearly 1 percent, to daily gas demand, according to data from Thomson Reuters Analytics.
Front-month gas futures on the New York Mercantile Exchange, the day's only gainer, ended up 0.7 cent at $3.611 per million British thermal units after climbing early to a new 2012 high of $3.638. Other months finished 2.3 to 4.6 cents lower.
"Thursday's surge (after the inventory report) revealed the large amount of buying pressure in the market," Gelber & Associates analyst Aaron Calder said in a report.
But Calder added, "We are still cautiously bearish here," noting near-term weather forecasts were not very supportive and fuel switching back to coal was a strong possibility if gas prices continue to rise.
Many fundamental traders expect further upside to be difficult, with inventories at record highs for this time of year and production at or near an all-time peak, particularly with demand likely to slow next week as milder weather returns.
Some traders caution that the recent spike in gas prices to 10-month highs will sow the seeds for renewed weakness by prompting producers to turn on more wells and utilities to switch back to lower-priced coal for power generation.
Any let up in coal-to-gas switching, which helped prop up gas prices all summer, could force more gas into already well supplied market.
After a chilly week in the Northeast and Midwest, key gas-consuming regions, private forecaster MDA EarthSat expects temperatures in both regions to mostly range from normal to above normal for the next two weeks.
Relative strength up front narrowed spreads to winter, with the January premium to November shrinking 5.2 cents, or 12 percent, this week to 38.4 cents. That spread, which has traded as wide as 53.3 cents this year in April, hit a one-year low of 34.4 cents in late July.
RIG COUNT SLIDES, PRODUCTION STILL HIGH
Baker Hughes data on Friday showed that the gas-directed rig count slid by 15 this week to 422, a new 13-year low.
Drilling for natural gas has been in a near-steady decline for the last year, with the gas-directed rig count down 55 percent since peaking last October at 936.
The rig declines this year have fed expectations that dry gas output would finally slow, but so far, production has shown few, if any, signs of tapering.
(Rig graphic: r.reuters.com/dyb62s )
The associated gas produced from more profitable shale oil and shale gas liquids wells has kept gas flowing at or near a record pace.
In its October short-term energy outlook on Wednesday, the U.S. Energy Information Administration said it expected marketed natural gas production in 2012 to be up about 4 percent from 2011's record levels, with a smaller 0.5 percent gain predicted in 2013.
LIGHT STORAGE BUILD
U.S. Energy Information Administration data on Thursday showed domestic gas inventories rose last week by 72 billion cubic feet to 3.
Traders and analysts viewed the build as bullish, noting it was well below the Reuters poll estimate of 80 bcf, the year-ago injection of 108 bcf and the five-year average increase for that week of 84 bcf.
While the injection cut the surplus relative to last year and the five-year average, inventories are still at record highs for this time of year and are likely to end the stock-building season above last year's all-time high of 3.852 tcf.
(Storage graphic: link.reuters.com/mup44s )
Storage, now at 88 percent full, is at a level that exceeds the average peak for the year of about 3.7 tcf typically hit in early November. Without more unseasonably cold weather this month, stocks are likely to grow for four or five more weeks.
Early injection estimates for next week's EIA report range from 30 bcf to 58 bcf versus a year-earlier build of 106 bcf and the five-year average increase for the week of 71 bcf.