UPDATE 3-US natgas futures end up, front posts 1-yr high on weather

Wed Nov 14, 2012 3:26pm EST

Related Topics

* Nuclear power plant outages stay high, boost demand
    * Storage expected to show first drop in Thursday report
    * Record-high storage, production limit price gains
    * Coming up: EIA, Enerdata natural gas storage data Thursday

 (Releads, adds trader quote, updates prices)
    By Joe Silha
    NEW YORK, Nov 14 (Reuters) - Most U.S. natural gas futures
ended higher on Wednesday for the third straight day, with
chilly Northeast and Midwest weather this week and expectations
for the season's first weekly storage draw driving the
front-month contract to a one-year high.
    Traders said nuclear plant outages this week have also lent
support, running about 10,000 megawatts above the same year-ago
week. Gas-fired plants are typically used to replace any lost
nuclear generation, and current nuclear outages could add nearly
2 billion cubic feet, or about 2.5 percent, to daily gas demand.
    "Colder temperatures have been driving us (up), but I'm not
sure they're going to last," a Texas-based trader said, noting
the cold this week stretched from Texas to the Northeast.
    Private forecaster Commodity Weather Group expects
temperatures in the Midwest, a key gas-consuming region, to warm
to above or much above normal next week. The South and East
should have near-seasonal readings next week before cooling
again in the 11-to-15-day time frame.
    Front-month gas futures on the New York Mercantile
Exchange ended up 2.1 cents at $3.76 per million British thermal
units after climbing intraday to $3.827, the highest for the
nearby contract since early November 2011. The front month has
gained 7.3 percent so far this week.
    Some 2014 and 2015 contracts settled down slightly.
    Technical traders noted the front contract broke key
resistance at $3.62 this week and has settled above that level
for two straight sessions, a bullish sign that could trigger
more buying.
    But gas inventories hit all-time highs last week and
production is still flowing at or near a record peak, so many
traders remain skeptical of further upside in prices without
more cold weather to boost demand.
    Some traders also said that if gas prices move much higher,
toward the $4 mark, that could increase supply by encouraging
producers to hook up more wells and dampen demand by making gas
less competitive with coal for power generation.
 
    INVENTORIES HIT NEW HIGHS
    Traders and analysts are waiting for the next U.S. Energy
Information Administration storage report on Thursday. Most
expect inventories to have fallen by 14 billion cubic feet last
week, according to a Reuters poll. 
    Stocks rose 20 bcf in the same week last year, while the
five-year average for that week is a 17-bcf build.        
    EIA data last week showed gas inventories for the week ended
Nov. 2 rose by 21 bcf to a record 3.929 trillion cubic feet. 
    It would be the first draw of the heating season and could
signal a top for inventories this year, but total stocks have
easily eclipsed the previous high of 3.852 tcf hit last
November. This is the fourth straight year in which inventories
head into the heating season at a record high.
    (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.

    RIGS DECLINE, PRODUCTION FAILS TO SLOW
    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 shown no significant sign of slowing.
    (Rig graphic: r.reuters.com/dyb62s )
    The Baker Hughes gas-directed rig count posted a 13-year low
last week, its third drop in the last five weeks.
    The associated gas produced from more-profitable shale oil
and shale gas liquids wells has kept dry gas flowing this year
at or near a record pace.
    New pipeline capacity scheduled late this year in some
bottlenecked shale plays such as Marcellus in Appalachia and
Eagle Ford in Texas could also lead to more supply.
    The EIA said last week that it expected marketed gas
production in 2013 to match 2012's record high estimated at
68.84 billion cubic feet per day.

 (Editing by Dale Hudson)
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