UPDATE 3-US natgas futures end up for 2nd day, EIAs seen bearish
* Futures slip, then rebound after slightly bearish EIA data * Mild outlook for next two weeks keeps buyers cautious * Record production, storage also limit upside * Coming up: Baker Hughes rig data, CFTC trade data Friday (Releads, adds analyst quote, spread data, updates prices) By Joe Silha NEW YORK, Oct 18 (Reuters) - Front-month U.S. natural gas futures, shrugging off a slightly bearish weekly inventory report, ended up sharply on Thursday, underpinned by technical buying after prices tested and held support early in the session. Domestic gas inventories rose last week by 51 billion cubic feet to 3.776 trillion cubic feet, data from the U.S. Energy Information Administration showed. Most traders viewed the report as slightly bearish, noting the build came in above the Reuters poll estimate of 48 bcf. Technical traders noted prices initially sold off on the data but quickly reversed when the front month tested and held chart support around $3.40 per million British thermal units, a level probed several times this week. "The market held support on the initial sell-off after the (EIA storage) number. It (the build) was bigger than expectations, but the friendly factor is that injections have been considerably smaller than last year and mostly below average," said Tom Saal at INTL FCStone in Miami. Some traders agreed the weekly injection was mildly supportive, noting it came in well below last year's gain of 106 bcf and the five-year average increase for that week of 71 bcf. Front-month gas futures on the New York Mercantile Exchange ended up 11.7 cents, or 3.4 percent, at $3.587 after sliding to an intraday low of $3.401 right after the EIA report. The nearby contract hit a 2012 high of $3.638 on Friday but struggled early in the week as milder weather slowed demand. So far the contract is still down slightly for the week. Relative strength up front narrowed spreads to winter, with the January premium to November shrinking 4.5 cents, or 9.3 percent, to 44.1 cents after posting a five-month high on Wednesday. Many fundamental traders remain skeptical of the upside, with inventories still at record highs for this time of year and production at or near an all-time peak, particularly with 10-day forecasts continuing to trend milder. The National Weather Service's six- to 10-day outlook issued on Thursday still shows above-normal temperatures covering states east of the Rockies, with normal or below-normal readings forecast for the West. Nuclear plant outages on Thursday were running nearly 7,000 megawatts above last year at this time and could shift some demand to gas, but traders noted at least three nuclear units were expected back during the day. Mild weather this week has slowed loads and reduced the need for replacement generation. Traders also noted concerns that recent gains in gas prices could increase supply by encouraging producers to hook up more wells and slow demand by making gas less competitive with coal for power generation. RECORD INVENTORIES The weekly storage build sliced the surplus relative to last year by 55 bcf to 181 bcf, or 5 percent above the same week in 2011. It also trimmed 20 bcf off the excess versus the five-year average, reducing that surplus to 249 bcf, or 7 percent. (Storage graphic: link.reuters.com/mup44s ) While a huge inventory overhang, which peaked in late March at nearly 900 bcf, has been cut by 80 percent, inventories are still at record highs for this time of year. At 89 percent full, stocks are already above the average peak for the year of 3.7 tcf typically hit in early November. Without some unseasonably cold weather soon, stocks are likely to grow for three or four more weeks and easily end the injection season above last year's all-time high of 3.852 tcf. Early injection estimates for next week's EIA report range from 52 bcf to 77 bcf versus a year-earlier build of 95 bcf and the five-year average increase for the week of 65 bcf. PRODUCTION STRONG DESPITE DRILLING DECLINES Traders await the next drilling rig report from Baker Hughes on Friday. Drilling for natural gas has been in a near-steady decline for the last year, with the gas-directed rig count down some 55 percent and posting a 13-year low last week. But so far, production has shown no significant signs of slowing. (Rig graphic: r.reuters.com/dyb62s ) While dry gas drilling has become largely uneconomical at current prices, gas produced from more-profitable shale oil and shale gas liquids wells has kept output near record highs. The EIA last week said it expected marketed gas production in 2012 to be up about 4 percent from 2011's record levels, with a 0.5 percent gain predicted in 2013. (Reporting by Joe Silha; Editing by Dale Hudson and Sofina Mirza-Reid)
- Ukraine says Russian tanks flatten town; EU to threaten more sanctions |
- EU wields Russia sanctions threat but timing vague |
- F-16s dispatched for unresponsive pilot of small plane near D.C.
- Polish president warns Germany of Putin's 'empire' ambitions
- Car tied to suspected threat against Obama found in Connecticut