UPDATE 2-US Jan natgas futures end down, mild weather forecast

Thu Dec 27, 2012 3:11pm EST

Related Topics

* Milder 11- to 15-day weather outlook pressures prices
    * High storage, production also weigh on sentiment
    * Above-average nuclear plant outages lend support
    * Coming up: EIA natgas storage data, CFTC trade data Friday

 (Releads, updates with closing prices)
    By Joe Silha
    NEW YORK, Dec 27 (Reuters) - U.S. natural gas futures ended
down slightly on Thursday, with the milder turn in the extended
weather forecast driving the front-month January contract lower
at expiration.
    Traders noted that heating demand rose sharply as
temperatures dropped this week and should stay strong for at
least the next week, supporting prices in the near term.
    But most agreed prices were unlikely to move much higher
unless the cold was sustained, because inventories remain at
record highs for this time of year, with production flowing at
or near an all-time peak.
    "Weather continues to be the main driver. The first 10 days
of the forecast are showing colder than normal temperatures, but
traders are reacting to a strong warm front predicted (later),"
Gelber & Associates analyst Aaron Calder said in a report.
    January natural gas futures on the New York
Mercantile Exchange expired down 3.8 cents at $3.354 per million
British thermal units after trading between $3.317 and $3.38. 
    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.
    But the contract remains up more than 12 percent so far in
2012 and looks set to post its first yearly gain since 2007.
    The boom in shale gas has kept gas prices on the defensive
for most of the last five years, but as prices slid to 10-year
lows below $2 earlier this year, demand picked up, particularly
from utilities, which helped stabilize the market.
    While gas demand can slow during the holidays regardless of
weather because many schools and businesses are closed, traders
said prices have garnered some support from nuclear plant
outages, which are still running at about 10,800 megawatts this
week, or about 5,000 MW above average for this time of year.
    Gas-fired plants are typically used to replace any lost
nuclear generation
    While MDA Weather Services expects temperatures for most of
the United States to range from normal to below normal for the
next week or so, the private forecaster said most major signals
point to a warm up in the 11- to 15-day outlook.
    
    INVENTORIES STILL NEAR RECORD
    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 EIA report according to a Reuters poll on Thursday,
with traders and analysts expecting stocks to have fallen by 76
bcf last week. 
    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 this week 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 Kenneth Barry, Leslie
Gevirtz and David Gregorio)
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