UPDATE 3-US gas futures end down for third day on milder weather

Thu Jan 3, 2013 3:02pm EST

* Prices remain above Wednesday low
    * Long-term outlooks call for milder weather
    * Coming up: EIA natgas storage data Friday


    By Eileen Houlihan
    NEW YORK, Jan 3 (Reuters) - U.S. natural gas futures slid
about 1 percent on Thursday, extending losses for a third
straight trading day due to moderating weather forecasts.
    But prices remained above Wednesday's three-month spot chart
low.
    A huge 30-cent, or 9 percent, drop in prices on Wednesday
was blamed on algorithmic, or computer-driven, trading.
    Still, prices have continued to struggle this week amid the
milder weather outlook, which should curb heating needs and
lessen demand for gas.
    "The weather continues to have a negative impact on natural
gas prices, with the eastern half of the U.S. projected to
experience above-normal temperatures at least through the first
half of January and possibly beyond," said Energy Management
Institute's Dominick Chirichella.
    Front-month February natural gas futures on the New York
Mercantile Exchange slid 3.5 cents, or a little more than
1 percent, to settle at $3.198 per million British thermal
units, after trading between $3.164 and $3.236.
    Other months ended lower as well, with the March contract
 losing 4.1 cents, also a little over 1 percent, to end at
$3.214, and summer months losing about 4 cents each. 
    The front-month contract fell as low as $3.05 on Wednesday,
a contract low and the lowest mark for a spot contract since
late September.
    On the technical charts, prices remained below the 14-day
moving average near $3.36 and the 40-day moving average near
$3.55, but above the 200-day moving average near $2.91.
    In the cash market, gas for Friday delivery at the NYMEX
benchmark Henry Hub in Louisiana lost 11 cents to
average $3.19.
    Late deals were done at 3 cents under the front-month
contract, easing from deals done late Wednesday at a 4-cent
premium.
    Gas on the Transco pipeline at the New York citygate slid nearly $4 to average about $6.
    The latest National Weather Service six-to-10-day forecast,
issued on Wednesday, called for above-normal temperatures for a
little more than the eastern half of the United States, with
below-normal readings only in the West.
    Private forecasters agreed with the milder outlook, with MDA
Weather Services' six-to-10-day outlook showing
much-above-normal temperatures across the eastern half of the
nation and normal readings in the West.
    Nuclear outages totaled just 7,500 megawatts, or 7 percent
of U.S. capacity, down slightly from 8,500 MW out on Wednesday
but up from 7,200 MW out a year ago and a five-year average
outage rate of about 5,500 MW. 
    
    WINTER STORAGE STILL BLOATED
    Last week's Energy Information Agency (EIA) gas storage
report showed total domestic inventories fell 72 billion cubic
feet to 3.652 trillion cubic feet, below market expectations for
a 76 bcf draw. 
    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, hovering at more than 2 percent above last
year and 13 percent above the five-year average.

    Withdrawal estimates for this week's report ranged widely,
from 68 bcf to 165 bcf, with most traders and analysts expecting
a draw of about 127 bcf when data is reported early Friday, a
Reuters poll showed. 
     Stocks fell 77 bcf during the same week a year ago and have
dropped about 111 bcf on average in that week over the past five
years.
    The EIA report is delayed by one day this week, until
Friday, because of the New Year's Day holiday on Tuesday.
       
    RIGS GAIN, OUTPUT STILL NEAR RECORD
    Baker Hughes data last week showed the gas-directed rig
count rose by two to 431, its second straight weekly gain.
 
    But drilling for natural gas has mostly declined for more
than a year, with gas rigs down 54 percent since peaking at 936
in October 2011.

    The gas rig count is hovering just above a 13-1/2-year low
of 413 hit 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.
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