UPDATE 2-Weather drives U.S. natural gas futures to higher close

Wed Dec 26, 2012 3:37pm EST

Related Topics

* Above-average nuclear plant outages lend support
    * Uncertainty over 11- to 15-day weather outlook limits gain
    * High storage, production also keep buyers cautious
    * Coming up: Reuters weekly natgas inventory poll Thursday

 (Adds byline, trader quote, updates with closing prices)
    By Joe Silha
    NEW YORK, Dec 26 (Reuters) - Front-month U.S. natural gas
futures ended higher on Wednesday for the first time in three
sessions, underpinned by chilly U.S. weather forecasts for the
next week or more that should boost homeowner and business
demand for heating.
    After mild early-December weather drove the front-month
contract to a 2-1/2-month low at mid-month, traders noted
heating demand was picking up with falling temperatures, first
in the Midwest and now in the East.
    "We've got a little cold weather coming in. The forecasts
look supportive, but I don't see prices going far," a
Pennsylvania-based trader said, adding that the gas market was
likely to remain well supplied this winter.
    While temperatures were expected to remain below normal for
most of the country through next week, traders said some
forecasters were looking for a warm-up in the 15-day outlook.
    Unless the cold is sustained, most traders agree it will be
difficult for gas prices to move much higher, with inventories
still at record levels for this time of year and production
flowing at or near an all-time peak.
    Front-month January natural gas futures on the New
York Mercantile Exchange, which expire on Thursday, ended up 4.6
cents, or 1.4 percent, at $3.392 per million British thermal
units after trading between $3.30 and $3.408.
    The front contract, which hit a 13-month high of $3.933 five
weeks ago, slid to a 2-1/2-month low of $3.261 in mid-December.
    While gas demand can slow during the holidays regardless of
weather because many schools and businesses are closed, traders
said prices could garner support from nuclear plant outages.
Those are running at about 11,400 megawatts this week, nearly
6,000 MW above average for this time of year.
    Gas-fired plants are typically used to replace any lost
nuclear generation.
    Commodity Weather Group expects a cold pattern to continue
for most of the United States over the next 10 days, but the
private forecaster said there was some uncertainty about
computer predictions for a warm-up in the 11- to 15-day outlook.
    Technical traders noted that despite the recent selloff,
front-month prices have managed to hold above key support at the
100-day moving average, which comes in at about $3.28.
    The next support was seen in the $3.20 area, which is the
medium-term trendline drawn across the April, June and August
lows.
    U.S. Energy Information Administration data last week showed
gas inventories for the week ended Dec. 14 fell to 3.724
trillion cubic feet, still a record high for this time of year.
    Storage now stands at 66 billion cubic feet, or nearly 2
percent, above the same year-ago week and 345 bcf, or 10
percent, above the five-year average.
    (Storage graphic: link.reuters.com/mup44s ) 
    Both storage surpluses are expected to widen further in
Friday's report, with early withdrawal estimates ranging from 66
bcf to 85 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 the week is 140 bcf. 
    The EIA report will be delayed by one day due to the
Christmas holiday on Tuesday.
    
    GAS OUTPUT SEEN AT RECORD FOR THIRD YEAR
    Drilling for natural gas has mostly been in decline for more
than a year, with gas rigs down 54 percent since peaking at 936 
in October 2011. 
    The Baker Hughes gas rig count at 429 is hovering just above
the 13-1/2-year low of 413 posted six weeks ago, but so far
production has shown no significant sign of slowing. 
    (Rig graphic: r.reuters.com/dyb62s)
    The EIA expects gas output in 2013 to rise to a record high
of 69.59 bcf per day, the third straight annual record.
    

 (Reporting by Joe Silha; Editing by Maureen Bavdek, John
Wallace and Dale Hudson)
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