UPDATE 3-U.S. natgas futures end mixed, front slips despite cold

Wed Jan 23, 2013 4:00pm EST

* Cold outlook for early February limits downside
    * Nuclear plant outages shift some demand to gas
    * High inventories, record production weigh on sentiment
    * Coming up: EIA, Enerdata natgas storage data Thursday


    By Joe Silha
    NEW YORK, Jan 23 (Reuters) - U.S. natural gas futures ended
mixed on Wednesday, with front months lightly pressured by
profit-taking ahead of milder weather expected next week despite
the arctic cold this week that has sharply kicked up heating
demand.
    "I think this is a little pullback ahead of the (Energy
Information Administration inventory) number tomorrow, but
prices haven't moved much. Prices are still elevated because of
the potential for heating demand in February," said Eric Bickel,
analyst at Summit Energy in Kentucky.
    While arctic temperatures this week are expected to moderate
somewhat next week, traders said forecasts for another cold shot
in the Midwest and East in early February should be enough to
keep sellers cautious.
    Front-month gas futures on the New York Mercantile
Exchange ended down 0.4 cent at $3.554 per million British
thermal units after trading between $3.512 and $3.596.
    The front contract gained 7.2 percent last week, its biggest
weekly run up in two months, but has slipped slightly this week
as forecasts moderated.
    The contract briefly dipped to a three-month low of $3.05
early this month, then climbed sharply as colder weather set in,
peaking at a 6-1/2-week high of $3.645 on Tuesday before
settling fractionally lower on the day.
    Chart traders noted the technicals turned more constructive
as the front month broke several key resistance points on the
way up. Next resistance was seen at the early December high near
$3.75 and then at the 2012 high of $3.933 hit in November.
    MDA Weather Services on Wednesday noted its six- to 10-day
forecast had turned warmer again across much of the Midwest,
South and East, but the private forecaster does see colder air
returning in early February.
    Traders said gas prices have picked up support from nuclear
plant outages, which are running at about 10,250 megawatts this
week, or 2,500 MW above average for this time of year.
    Gas-fired plants are typically used to offset any lost
nuclear generation, and traders said the recent cold blast has
increased the need for replacement power.
    But many traders remain skeptical of the upside, with
inventories still relatively high and production flowing at or
near an all-time peak.    
    
    ANOTHER DECENT STORAGE DRAW EXPECTED 
    Weekly inventory draws have exceeded market expectations in
the last three reports, and that trend is likely to continue in
Thursday's U.S. EIA report. Traders and analysts polled by
Reuters expect inventories to have fallen by 167 billion cubic
feet last week. 
    Stocks fell an adjusted 162 bcf in the same week last year.
The five-year average decline for that week is 176 bcf.
    EIA data last week showed domestic gas inventories for the
week ended Jan. 11 fell to 3.168 trillion cubic feet.
 
    Traders said well freeze-offs in the Rockies and utilities
switching from coal to cheaper gas to generate power helped back
stronger inventory withdrawals, but they noted that storage is
still high at 316 bcf, or 11 percent, above the five-year
average.

    GAS RIG COUNT FALLS, PRODUCTION STILL NEAR RECORD
    Baker Hughes data on Friday showed the gas-directed rig
count fell by five last week to 429, the second straight weekly
decline. 

    Drilling for natural gas has mostly been in decline for more
than a year, with gas rigs down some 54 percent since peaking in
2011 at 936 in October. The gas rig count is hovering just above
the 13-1/2-year low of 413 posted in early November.  
    But so far, production has shown no sign of slowing.
    The Energy Information Administration estimates that output
in 2013 will hit a record high for a third straight year.
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