UPDATE 3-US natgas futures end down for 2nd day, mild temps weigh

Tue Jan 8, 2013 3:18pm EST

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(Adds byline, trader quote, updates with closing prices)
    * High storage, production weigh on sentiment
    * Colder midmonth outlook continues to moderate
    * Coming up: Reuters natgas storage poll Wednesday

    By Joe Silha
    NEW YORK, Jan 8 (Reuters) - U.S. natural gas futures ended
lower o n Tuesday f or a second straight day a s mild near-term
weather and record high supplies co ntinued to pr essure the
complex.
    With inventories still at record highs for this time of year 
and g overnment p roduction d ata t his week s howing gas f lowing at
an all-time peak, many traders expect prices to remain on the
def ensive until much colder weather forces homeowners and
businesses to turn up their heaters.
    While below-normal temperatures were expected to return
later in January, traders noted computer models continued to
moderate the outlook. 
    After a chilly week last week, MDA Weather Services expects
temperatures for the eastern half of the United States to range
from above to much-above normal for the next 10 days.
    Colder readings for most of the country were expected in the
11- to 15-day outlook, but the private forecaster noted changes
overnight were mostly warmer and model support for any strong
cold spell was faltering.
    "The forecasts look pretty mild for the next week. We're
waiting to see if the cold shows up after that," a
Pennsylvania-based trader said, also noting concerns about high
production which hasn't fallen off like most analysts had
expected. 
    F ront-month gas futures on the New York Mercantile
Exchange e nded d own 4 . 8 cents, or 1.5 percent, at $3.21 8 per
million British thermal units after trading between $3.201 and
$3.281. 
    The front contract, which hit a three-month low of $3.05 on
Wednesday, lost 5.2 percent last week. So far this week the
contract is down another 2.1 percent as milder weather moved
across the country and slowed overall demand.
    Traders said gas prices could pick up support from nuclear
plant outages, which are running at about 8,550 megawatts this
week, or 2,700 MW above average for this time of year.
    Gas-fired plants are typically used to offset any lost
nuclear generation, but traders said the milder temperatures
ahead were likely to lessen the need for replacement power.
    
    GAS DRILLING GAINS, PRODUCTION STILL NEAR RECORD
    Drilling for natural gas has fallen some 53 percent since
peaking in 2011 at 936 in October, but so far production has not
shown any signs of slowing.
    (Rig graphic: r.reuters.com/dyb62s)
    Energy Information Administration data on Monday showed that
gross U.S. gas production in October climbed to 73.54 billion
cubic feet per day, the second straight monthly record.
    Then on Tuesday, the agency said it expected marketed
natural gas production in 2013 to rise by nearly 1 percent to an
average of 69.84 billion cubic feet per day, which would be the
third straight year of record output.
       
    ABOVE AVERAGE STORAGE LEVELS
    Total domestic gas inventories are still at record highs for
this time of year, hovering at more than 12 percent above the
five-year average. 
    (Storage graphic: link.reuters.com/mut84t )
    Withdrawal estimates for Thursday's EIA storage report
ranged from 155 bcf to 192 bcf, with most in the low-180s. That
would be well above the year-ago draw of 95-bcf and the
five-year average decline for that week of about 149 bcf.

 (Reporting By Joe Silha; Editing by Grant McCool,Bob Burgdorfer
and Diane Craft)
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