UPDATE 3-US natgas futures end up 4 pct, weather and data support

Thu Dec 20, 2012 3:24pm EST

Related Topics

* Cold extended weather forecasts help lift prices
    * Prices extend gains after weekly EIA storage report
    * Near record-high inventories, production limit price gains
    * Coming Up: Baker Hughes rig data, CFTC trade data Friday

 (Releads; adds analyst's quote; updates weather, closing
prices)
    By Joe Silha
    NEW YORK, Dec 20 (Reuters) - Front-month U.S. natural gas
futures ended higher for the third time this week on Thursday,
backed by colder extended weather forecasts for the Northeast
and Midwest and a government report showing a
larger-than-expected weekly inventory withdrawal.
    The U.S. Energy Information Administration report showed
total domestic gas inventories fell last week by 82 billion
cubic feet to 3.724 trillion cubic feet. Traders and analysts
polled by Reuters had expected a 72 bcf draw. 
    While traders viewed the withdrawal as supportive relative
to expectations, they noted it was still well below last year's
100 bcf pull and the five-year average draw for that week of 144
bcf.
    "Today's inventory report was viewed as bullish based on the
fact that the net withdrawal was greater than the market
consensus but bearish from the perspective that it was lower
than both last year and the five-year average," Energy
Management Institute's Dominick Chirichella said in a report.
    Front-month gas futures on the New York Mercantile
Exchange ended up 14.2 cents, or 4.3 percent, at $3.462 per
million British thermal units after climbing to an intraday high
of $3.467 late in the floor trading session.
    The front contract, which hit a 13-month high of $3.933 per
mmBtu four weeks ago and a 2-1/2-month low of $3.261 last
Friday, has gained 4.5 percent so far this week.
    Traders also said that colder weather expected later this
week and next week should stir more heating demand and help
underpin gas prices in the near term.
    AccuWeather.com expects temperatures in the Northeast and
Midwest, key gas consuming regions, to mostly average near
normal to slightly below normal for the next 10 days.
    But even with chillier weather ahead, few traders expected
much upside, noting inventories remain at record highs for this
time of year and gas production was still flowing at, or near, a
record peak.
    Some traders said that demand during the Christmas and New
Year holiday weeks typically slows regardless of weather because
many schools and businesses are closed.
    NYMEX floor trading will close early on Monday at 1:30 p.m.
(1830 GMT) and will remain closed on Tuesday for Christmas.

    INVENTORIES DROP MORE THAN EXPECTED 
    The weekly draw increased the storage surplus relative to
last year by 18 bcf to 66 bcf, or nearly 2 percent. It also
added 62 bcf to the excess versus the five-year average,
increasing that total to 345 bcf, or 10 percent.
    (Storage graphic: link.reuters.com/mup44s ) 
    Inventories started the heating season in November at a
record high of 3.929 tcf, making this the fourth straight year
in which storage headed into winter at a record peak.
    The storage surpluses are expected to widen further in next
week's report, with early withdrawal estimates ranging from 66
bcf to 83 bcf. That would be short of the 87 bcf pulled from
inventory during the same week last year, while the five-year
average decline for that week is 140 bcf.
    
    DRILLING DECLINES, OUTPUT STILL NEAR RECORD
    Traders were waiting for the next drilling rig report from
Baker Hughes on Friday.
    (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 at 936 
in October 2011. 
    The gas-directed rig count is hovering just above the 13-1/2
year low of 413 posted five weeks ago, 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. 

 (Additional reporting by Eileen Houlihan; editing by Jim
Marshall; and Peter Galloway)
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