UPDATE 3-Front U.S. natural gas futures end lower for 5th day

Mon Jan 28, 2013 3:19pm EST

* Front-month futures close below 100-day moving average
    * High storage, production weigh on prices


    By Joe Silha
    NEW YORK, Jan 28 (Reuters) - Front-month U.S. natural gas
futures ended lower for a fifth straight day on Monday,
undermined by milder Northeast and Midwest weather this week
that should slow heating demand.
    While colder temperatures are expected to return to both
regions later this week and early next week, traders also noted
that the extended, or 15-day, outlook had turned warmer.
    "On Friday, it looked like we were in for some real cold,
but that forecast evaporated today. We lost the weather (cold
forecast), so the market tanked," a Texas-based trader said.
    Front-month February gas futures, which expire on
Tuesday, ended down 15.5 cents, or 4.5 percent, at $3.289 per
million British thermal units on the New York Mercantile
Exchange after trading between $3.285 and $3.396.
    The front month, which hit a 6-1/2-week high of $3.645 early
last week, has lost 7.8 percent in the last five sessions as
weather forecasts moderated. That marks the biggest five-day
slide in nearly seven weeks.
    Technical traders noted the front contract gapped lower on
Monday and closed below the 100-day moving average in the $3.40
area, a possible bearish sign that could signal more downside.
    In its morning report, MDA Weather Services said the
11-to-15-day forecast included some "major warm changes" on
Monday, noting computer models show warmth expanding from the
South.
    While gas prices could garner some support from nuclear
plant outages, which are running at about 9,000 megawatts this
week, or 2,700 MW above average, few traders expect much upside
with inventories high and production flowing at or near a record
pace.
    
    BIG STORAGE DRAW FAILS TO FIRM PRICES
    U.S. Energy Information Administration data on Thursday
showed domestic gas inventories for the week that ended Jan. 18
had fallen by 172 billion cubic feet to 2.996 trillion cubic
feet. 
    Most traders viewed the decline as supportive, noting it
topped market expectations for the fourth straight week, but
inventories are still hovering at 320 bcf, or 12 percent, above
the five-year average despite recent strong pulls from storage.
    
    Early withdrawal estimates for Thursday's inventory report
range from 197 bcf to 210 bcf. That would be well above the 149
bcf drawn from inventory during the same week last year and the
five-year average decline of 178 bcf for that week.    
    If drawdowns for the rest of winter match the five-year
average, inventories will end March at 2.048 tcf, about 18
percent above normal but 17 percent below last year, when stocks
finished a very mild heating season at a record-high 2.48 tcf.  
    
    
    GAS RIG COUNT GAINS, FIRST TIME IN 3 WEEKS
    Baker Hughes data on Friday showed the gas-directed
drilling rig count gained last week for the first time in three
weeks, rising by five to 434. 
    
    Drilling for natural gas has mostly been in decline for more
than a year. The gas rig count is not far above the 13-1/2-year
low of 413 posted in early November, but so far production has
shown no significant sign of slowing.
    The EIA estimates that gas output in 2013 will hit a record
high for the third straight year.
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