UPDATE 3-U.S. natgas futures lose 3 pct despite big storage draw

Thu Jan 24, 2013 3:35pm EST

* Weekly inventory decline above estimates for 4th week

* Prices drop despite supportive storage data, near-term cold

* Record high production also weighs on sentiment

* Coming up: Baker Hughes gas drilling rig data Friday

By Eileen Houlihan and Joe Silha

NEW YORK, Jan 24 (Reuters) - U.S. natural gas futures slid more than 3 percent on Thursday, ending lower for a third straight day, on profit taking despite cold weather in consuming regions in the eastern United States and a larger-than-expected weekly drawdown from inventories.

"A bullish weekly inventory report was not enough to push the natural gas market back into positive territory, nor was the latest government short-term weather forecast which was more supportive than the prior day's forecast," noted Energy Management Institute's Dominick Chirichella.

"The market may be slowly moving into a mode of too little too late so to speak as February is the only month of the remaining winter heating season that is currently projected to experience winter-like weather over major portions of the country," he added.

Thursday's gas storage report from the U.S. Energy Information Administration showed inventories fell last week by 172 billion cubic feet, above industry expectations for a 167-bcf draw.

Most traders viewed the decline as supportive, noting it was the fourth straight week declines have topped industry expectations.

But some said the market was due for a technical pullback after posting a three-month low of $3.05 per million British thermal units at the start of the month, then shooting up to a more than six-week high of $3.645 early this week.

"We've seen some very bullish storage numbers in the last few weeks and had a good price run-up. I think some of the new length may be taking profits, but I don't see a lot of downside with forecasts still looking fairly cold," a Massachusetts-based trader said.

Front-month February natural gas futures on the New York Mercantile Exchange slid 10.8 cents, or just over 3 percent, to settle at $3.446 per mmBtu. The contract traded between $3.441 and $3.592.

Other months ended lower as well, with the March contract down 9.9 cents, or nearly 3 percent, to $3.454 and summer months ending down about 8 cents each.

Traders said prices could stall here with temperatures expected to turn milder next week and slow demand. But few expect much downside, with nuclear plant outages still running well above normal and another shot of cold air forecast for the following week.

MDA Weather Services on Thursday noted its six to 10-day forecast turned warmer again for the South and East, but the private forecaster expects the next round of cold to hit the Midwest by the middle of next week, then spread east, dropping temperatures to far-below-normal in early February.

ANOTHER BIG STORAGE DRAW, BUT STOCKS ABOVE AVERAGE

Traders said the recent larger-than-expected inventory draws could be reflecting new growth in gas use this year as utilities have switched from coal to cheaper gas for power generation.

But despite the large withdrawals, storage remains at 2.996 trillion cubic feet, about 5 percent below year-earlier levels, but 12 percent above the five-year average.

(Storage graphic:)

Inventories started the heating season in early November at 3.929 tcf, the fourth straight year in which they have headed into the heating season at a record peak.

Early withdrawal estimates for next week's storage report range from 195 to 210 bcf versus the 149 bcf pulled from inventory during the same week last year and the five-year average decline for that week of 178 bcf.

If drawdowns for the rest of winter match the five-year average pace, inventories will end March at 2.048 tcf, about 18 percent above normal, but 17 percent below last year when stocks finished the mild winter at 2.48 tcf, an end of winter record high.

DRILLING RIG COUNT SLIDES, BUT OUTPUT NEAR RECORD

Traders await the next Baker Hughes gas drilling report to be released on Friday. Data last week showed the gas-directed rig count fell by five to 429, its second straight weekly loss.

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.

(Rig graphic:)

But the EIA also said recently that it expected gas output in 2013 to rise to 69.84 bcf per day, the third straight annual record.

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