UPDATE 2-US natural gas futures end higher, cold weather due

Fri Dec 28, 2012 3:31pm EST

Related Topics

* Above-average nuclear plant outages lend support
    * Milder 11- to 15-day weather outlook limits gains
    * High storage, production also keep buyers cautious
    * Coming up: EIA monthly gross gas production data Monday

 (Releads, adds analyst quote, Baker Hughes rig data, updates
prices)
    By Joe Silha
    NEW YORK, Dec 28 (Reuters) - Front-month U.S. natural gas
futures shrugged off a smaller-than-expected weekly inventory
draw and ended higher on Friday in reaction to forecasts for
cold U.S. weather next week that should force homeowners and
businesses to turn up their heaters.
    The U.S. Energy Information Administration report showed
total domestic gas inventories fell last week by 72 billion
cubic feet to 3.652 trillion. 
    While some traders viewed the draw as neutral - noting it
was just below the Reuters poll estimate of 76 bcf - others saw
it as bearish, noting it was well below last year's 87 bcf pull
and the five-year average decline for that week of 140 bcf.
    Inventories started the heating season in early November at
an all-time high of 3.929 tcf and are still at record highs for
this time of year.
    "The (EIA draw) number was nearly in line. I think the
market moved on the cold weather outlook for next week, but
there is talk that temperatures could moderate during the second
week of January," said Steve Mosley at The SMC Report. 
    Front-month gas futures on the New York Mercantile
Exchange ended up 5.7 cents, or 1.7 percent, at $3.469 per
million British thermal units. The front contract is up 16
percent in 2012 and looks set to post its first yearly gain
since 2007. Only one trading session remains in the year.
    The boom in shale gas production has kept gas prices on the
defensive for most of the last five years, but as prices lost
ground the demand picked up, particularly from utilities, which
helped stabilize the market.
    Traders said the cold that is expected to cover much of the
United States for the next 10 days should increase demand and
underpin prices in the near term.
    But most agreed price gains may be limited with milder
weather possibly on the horizon, inventories still near record
highs and production flowing at or near an all-time peak.
    Traders said gas prices could gain support from nuclear
plant outages, which are running at about 10,300 megawatts this
week, or more than 4,000 MW above average for this time of year.
    Gas-fired plants are typically used to replace any lost
nuclear generation.
    MDA Weather Services expects temperatures for most of the
United States to average below normal for the next 10 days, but
the private forecaster expects warmer readings through the
Midwest and East during the second week of January.
    
    INVENTORIES DROP LESS THAN EXPECTED 
    The weekly draw increased the storage surplus relative to
last year by 15 bcf to 81 bcf, or more than 2 percent. It also
added 68 bcf to the excess versus the five-year average, pumping
that total up to 413 bcf, or 13 percent.
    (Storage graphic: link.reuters.com/mut84t )
    This is the fourth straight year in which inventories headed
into the heating season at an all-time high, offering a
comfortable cushion to meet any winter spikes in demand.
    Early withdrawal estimates for next week's report range from
100 bcf to 141 bcf. That would be well above the 77 bcf pulled
during the same year-ago week. The five-year average is 111 bcf.
    The EIA report was delayed by one day this week due to the
Christmas holiday and will be delayed by one day again next week
due to the New Year holiday.
    
    RIGS GAIN, OUTPUT STILL NEAR RECORD
    Baker Hughes data on Friday showed the gas-directed
rig count rose by two this week to 431, its second straight
weekly gain. 
    Drilling for natural gas has mostly been in decline for more
than a year, with gas rigs down 54 percent since peaking in 2011
at 936 in October. 
    (Rig graphic: r.reuters.com/dyb62s)
    The gas rig count is hovering just above the 13-1/2-year low
of 413 hit just seven weeks ago, but so far production has not
shown any significant sign of slowing. 
    The EIA expects gas output in 2013 to rise to a record high
of 69.59 bcf per day, the third straight annual record.

 (Editing by John Wallace and M.D. Golan)
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