UPDATE 3-Weather drives US natgas futures to 7th straight loss

Fri Dec 14, 2012 3:28pm EST

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* Mild forecasts for next week again pressure prices
    * Near record-high storage, production also weigh
    * Front futures down more than 10 pct in last 7 sessions

 (Releads, adds trader quote, updates prices)
    By Joe Silha
    NEW YORK, Dec 14 (Reuters) - U.S. natural gas futures ended
lower on Friday for a seventh straight day, with record high
supplies and moderate Northeast and Midwest weather forecasts
again driving the front-month contract to a 2-1/2-month low.
    Technical traders agreed the market was due for a bounce
after its recent stumble, particularly with the 14-day relative
strength index, an indicator of market momentum, sliding into
very oversold territory in the mid 20s late this week.
    But few expected much upside with no extreme cold on the
horizon, inventories back at record highs for this time of year,
 and production flowing at or near an all-time peak.
    "People are hesitant to go long (buy) here. We're looking at
the weather forecasts, and they still look pretty mild," said
Steve Mosley at The SMC Report.
    Front-month gas futures on the New York Mercantile
Exchange ended down 3.3 cents, or 1 percent, at $3.314 per
million British thermal units, after sinking earlier to $3.261,
the lowest level since late September.    
    The front contract, which hit a 13-month high of $3.933
three weeks ago, has lost more than 10 percent in the previous
six sessions, the biggest seven-day slide in four months.
    AccuWeather.com expects temperatures in the Northeast and
Midwest, key gas-consuming regions, to average above normal for
the next week or so, then cool to below normal during the
Christmas week as daytime highs drop into the high 20s and low
30s Fahrenheit.
    But despite the cooler extended outlook, which could boost
heating needs, traders said demand during the Christmas and New
Year holiday weeks typically slows regardless of weather because
many schools and businesses are closed.    
   
    RIGS DECLINE for 3RD WEEK, OUTPUT STILL NEAR RECORD
    Baker Hughes data on Friday showed the gas-directed
rig count fell by one this week to 416, just above the
13-1/2-year low of 413 posted five weeks ago. 
    (Rig graphic: r.reuters.com/dyb62s)
    Drilling for natural gas has mostly been in decline for more
than a year, with gas rigs down 56 percent since peaking in 2011
at 936 in October. But so far production has shown no
significant sign of slowing.     
    The U.S. Energy Information Administration on Tuesday said
it expected gas output in 2013 to rise to a record high of 69.59
billion cubic feet per day, the third straight annual record. 
 
    
    INVENTORIES HOVER NEAR RECORD HIGHS
    EIA data on Thursday showed total domestic gas inventories
rose last week by 2 bcf to 3.806 trillion cubic feet.
    Traders viewed the weekly injection as bearish, noting that
gas inventories typically fall by more than 100 bcf during the
first week of December. The Reuters poll estimate was for a
decline of 4 bcf, with only five of 26 participants expecting a
small build.  
    The build drove inventories back up to 48 bcf, or 1 percent,
above year-ago levels, from a slight deficit the week before. It
also added 115 bcf to the surplus relative to the five-year
average, increasing that total to 283 bcf, or 8 percent.
    (Storage graphic: link.reuters.com/mup44s )          
    Storage hit a record high of 3.929 tcf five weeks ago and is
still at record highs for this time of year. This is the fourth
straight year in which inventories headed into the heating
season at an all-time peak.
    The storage surplus is expected to widen further in next
week's report, with early withdrawal estimates ranging from 53
bcf to 81 bcf. That would be well short of the 100 bcf pulled
from inventory during the same week last year, while the
five-year average decline for that week is 144 bcf.
    

 (Additional reporting by Eileen Houlihan; editing by John
Wallace and Marguerita Choy)
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