UPDATE 3-US natgas futures end up 2 pct on cool near-term weather

Mon Nov 12, 2012 3:19pm EST

Related Topics

* Nuclear power plant outages stay high, boost demand
    * Record-high storage, production limit price gains
    * Coming up: Reuters natgas storage poll Wednesday

 (Adds analyst's quote, technicals, updates prices)
    By Joe Silha
    NEW YORK, Nov 12 (Reuters) - U.S. natural gas futures,
backed by chilly forecasts for the eastern half of the nation,
ended higher on Monday, but record high supplies kept prices
trapped in the recent trading range with little reason to break
far in either direction.
    Traders noted that nuclear plant outages this week remained
well above last year and the five-year average, a factor that 
may limit the downside in prices if chilly temperatures continue
to force homeowners and businesses to crank up the heat.
    "Weather forecasts have turned from mostly warmer
temperatures to more mixed. The market should not read too much
into a short-term weather forecast that is likely to reverse
itself in the coming weeks," Gelber & Associates analyst Aaron
Calder said in a report.
    Nuclear outages on Monday were running nearly 9,000
megawatts above the same year-ago week, which could add as much
as 1.5 billion cubic feet, or about 2 percent, to daily gas
demand. Gas-fired power plants are typically used to replace
lost nuclear generation.
    But with gas inventories at record highs and production
flowing at, or near, a record peak, traders said any upward move
in prices could prove difficult without sustained cold weather
to boost demand.
    Front-month gas futures on the New York Mercantile
Exchange ended up 6.7 cents, or near 2 percent, at $3.57 per
million British thermal units after trading between $3.47 and
$3.596.    
    Technical traders said the nearby contract, which hit a
one-year intraday high of $3.82 two weeks ago, has been in a
seesaw pattern this month, closing up one day then down the next
but overall losing just 3.3 percent so far.
    They noted that prices for the last week or so seemed stuck
in a range between the high-$3.40s and $3.62, but most agreed a
front month settle below $3.50 would be bearish.
    Forecaster MDA EarthSat expects temperatures for the eastern
half of the nation to average normal or below normal this week,
with milder weather moving into the upper Midwest late this week
and next week. Colder trends were expected for the Southeast and
much of the East Coast during the six- to 10-day period.
    
    RIGS HIT NEW LOW, PRODUCTION FAILS TO SLOW
    Baker Hughes data on Friday showed the gas-directed rig
count fell last week by 11 to 413, the third drop in the last
five weeks and the lowest since early June 1999.
    Drilling for natural gas has been in decline for most of the
past year, with gas rigs falling some 56 percent since peaking
at 936 in October 2011. The steep slide has fed expectations
that producers might soon curb record output, but so far
production has not shown any significant signs of slowing.
    (Rig graphic: r.reuters.com/dyb62s )
    The associated gas produced from more-profitable shale oil
and shale gas liquids wells has kept dry gas flowing at or near
a record pace. New pipeline capacity scheduled late this year in
some bottlenecked shale plays like Marcellus in Appalachia and
Eagle Ford in Texas could also lead to more supply.
    The U.S. Energy Information Administration said last week it
expected marketed gas production in 2013 to match 2012's record
high estimated at 68.84 billion cubic feet per day.
    
    INVENTORIES HIT NEW HIGHS
    EIA data last week showed gas inventories for the week ended
Nov. 2 rose by 21 bcf to a record of 3.929 trillion cubic feet.
Storage this year has easily eclipsed the previous record high
of 3.852 tcf hit last November, with one more build possible in
this week's report. 
    Early estimates for Thursday's EIA storage report range from
a build of 15 bcf to a draw of 17 bcf. Last year during that
week, stocks rose 20 bcf, while the five-year average is 17 bcf.
   
   (Storage graphic: link.reuters.com/mup44s )           
    While a huge inventory overhang, which peaked in late March
at nearly 900 bcf, has been cut by 88 percent, storage is 93
percent full and will provide a comfortable cushion to meet any
winter spikes in demand or unexpected disruptions in supply.

 (Additional reporting by Eileen Houlihan; editing by Sofina
Mirza-Reid; and Peter Galloway)
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