UPDATE 3-Mild weather drives US natgas futures down for 3rd day

Wed Jan 9, 2013 3:28pm EST

Related Topics

* High storage, production weigh on prices
    * Colder mid-month outlook continues to moderate
    * Coming up: EIA, Enerdata natgas storage data Thursday

 (Releads, adds analyst quote, updates with closing prices)
    By Joe Silha
    NEW YORK, Jan 9 (Reuters) - Front-month U.S. natural gas
futures ended lower for a third straight day on Wednesday, as
fairly mild near-term weather forecasts and bearish government
data on production this week continued to pressure the complex.
    Despite expectations for a supportive weekly inventory
report on Thursday - a Reuters poll on Wednesday put the
withdrawal estimate well above last year and the five-year
average - many traders expect prices to remain on the defensive
with storage and production still at or near record highs.
    "The biggest driver for this market the past week has been
weather, which is typical during winter. There has been a lot of
questions surrounding weather spurred by large swings in both
forecasted and realized temperatures," Gelber & Associates
analyst Aaron Calder said in a report.
    Without colder weather to force homeowners and businesses to
turn up their heaters, traders said any upside in prices will be
difficult.
    While mild weather covering the eastern half of the nation
this week is expected to taper off next week, Commodity Weather
Group said the outlook for the six- to 15-day period has been
trending warmer, likely lowering the potential for demand.
    The private forecaster's 11- to 15-day map on Wednesday
showed seasonal readings for most of the country, with cold only
expected across northern tier states.
    Front-month gas futures on the New York Mercantile
Exchange ended down 10.5 cents, or 3.3 percent, at $3.113 per
million British thermal units after trading between $3.087 and
$3.227. 
    The front contract, which hit a three-month low of $3.05
last Wednesday, lost 5.2 percent last week. So far this week the
contract is down another 5.3 percent as milder weather moved
across the country and curbed heating needs.
    The technical, or chart picture, has also been tilting
against the bulls. Gas prices over the last week dropped below
the 100-day moving average and the intermediate trendline dating
back to the 10-year low of $1.902 hit in April.
    While the market is oversold and there should be some
psychological buying at the $3 level, better support may lie at
the 200-day moving average near $2.93.
    Traders said gas prices could pick up support from nuclear
plant outages, which are running at about 8,500 megawatts this
week, or 2,800 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.     
  
     
    HIGH STORAGE
    While gas inventories are likely to drop below year-ago
levels in Thursday's Energy Information Administration report,
total stocks will still be running at more than 10 percent above
the five-year average, a comfortable cushion to meet any
unexpected spikes in winter demand or disruptions in supply.
    (Storage graphic: link.reuters.com/mut84t )
    A Reuters poll on Wednesday showed that traders and analysts
expected stocks to have fallen by 186 billion cubic feet last
week. Storage dropped by an adjusted 90 bcf during the same week
last year, while the five-year average decline for that week is
132 bcf. 
    EIA data last week showed that gas inventories for the week
ended Dec. 28 stood at 3.517 trillion cubic feet, still a record
high for that time of year. 
    
    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)
    EIA data on Monday showed that gross U.S. gas production in
October climbed to 73.54 bcf per day, the second straight
monthly record.
    On Tuesday, the agency said it expected marketed natural gas
production in 2013 to rise nearly 1 percent to an average of
69.84 bcf daily, which would be the third straight year of
record output.    

 (Additional reporting by Eileen Houlihan; Editing by Bob
Burgdorfer and Tim Dobbyn)
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