UPDATE 3-US gas futures slip near 3 pct, weather outlook moderates

Wed Dec 19, 2012 3:43pm EST

Related Topics

* Extended weather forecasts moderate, still near normal
    * Near record-high storage, production weigh on prices
    * Coming Up: EIA, Enerdata natgas storage data on Thursday

 (Updates prices to settlement, recasts)
    By Joe Silha and Eileen Houlihan
    NEW YORK, Dec 19 (Reuters) - U.S. natural gas futures slid
nearly 3 percent on Wednesday, pressured after two days of gains
by moderating weather outlooks that should curb heating demand
for at least the remainder of the year.
    The front contract, which hit a 13-month high of $3.933 per
million British thermal units in late November and a 2-1/2-month
low of $3.261 on Friday, had gained about 3 percent in the prior
two sessions.
    But much of that buying looked technical, according to
traders, with prices bouncing from an oversold condition after
seven straight losses and shorts covering ahead of the Christmas
and New Year holidays.
    "Natural gas continues to be driven by the weather and the
latest NOAA forecast issued yesterday afternoon once again
switched to a much less supportive projection than the forecast
from the weekend and the day before," noted Energy Management
Institute's Dominick Chirichella.
    "The fundamentals and technicals are now suggesting that the
market may be heading lower for the short term. As I have been
discussing for weeks the direction of gas prices are primarily
dependent on the actual and forecasted weather pattern now that
we are in the heart of the winter heating season and currently
those forecasts are now switching to a more bullish scenario,"
Chirichella added.
    Front-month January gas futures on the New York Mercantile
Exchange slid 9.8 cents, or nearly 3 percent, to settle
at $3.32 per mmBtu, after trading between $3.284 and $3.414.
    Other months ended lower as well, with the February contract
 losing 8.9 cents to finish at $3.366 and summer months
losing about 7 cents each.
    Even with chilly weather ahead in some regions, few traders
expected much upside with no extreme cold on the horizon and
inventories hovering at record highs for this time of year.
    MDA Weather Services noted its six to 10-day and 11 to
15-day forecasts turned slightly warmer overnight, but the
private forecaster still expects mostly normal temperatures to
dominate the East, while below-seasonal readings will move into
the West.
    Some traders noted that demand during the Christmas and New
Year holiday weeks typically slows regardless of weather because
many schools and businesses are closed.              
    
    INVENTORIES LINGER NEAR RECORD HIGHS
    Energy Information Administration storage data last week
showed gas inventories for the week ended Dec. 7 rose by 2
billion cubic feet to 3.806 trillion cubic feet. 
    The rare December injection was viewed as bearish, with most
traders expecting a slight decline. Gas inventories typically
fall by more than 100 bcf during the first week of December. 
    Inventories are still at a record high for this time of
year, hovering at about 1 percent above year-ago levels and 8
percent above the five-year average.  
    (Storage graphic: link.reuters.com/mup44s)           
    Traders and analysts were waiting for the next EIA storage
report on Thursday, with most expecting inventories to have
fallen by 72 bcf last week, according to a Reuters poll released
on Wednesday. 
    A draw at the Reuters poll estimate would fall well short of
both the 100 bcf pulled from inventory during the same week last
year and the five-year average decline for that week of 144 bcf.
    Storage hit a record high of 3.929 tcf in early November,
making this the fourth straight year in which inventories headed
into the heating season at an all-time peak.
    
    DRILLING DECLINES, OUTPUT STILL NEAR RECORD
    Baker Hughes data last week showed the gas-directed
rig count fell by one to 416, leaving the count 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 not shown any
significant sign of slowing. 
    The EIA last week 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. 

 (Editing by Bob Burgdorfer and Phil Berlowitz)
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