U.S. natgas futures edge higher ahead of cold weekend

Fri Feb 1, 2013 9:23am EST

* Front month remains above recent 3-month low
    * Colder weather returns to eastern United States
    * Nuclear outages running near normal levels
    * Coming Up: Baker Hughes gas drilling rig data Friday

    By Eileen Houlihan
    NEW YORK, Feb 1 (Reuters) - U.S. natural gas futures edged
higher early Friday, boosted by expectations for stronger
heating amid another burst of cold in the eastern half of the
country late this week.
    But with milder weather on tap by mid-month and a
lighter-than-expected weekly withdrawal from inventories on
Thursday, most traders expect limited upside.
    As of 9:17 a.m. EST (1417 GMT), front-month March natural
gas futures on the New York Mercantile Exchange were at
$3.367 per million British thermal units, up 2.8 cents, or less
than 1 percent.
    The front month contract hit a 6-1/2-week high of $3.645
early last week after hitting a more than three-month low of
$3.05 in early January. 
    Forecaster MDA Weather Services said cold would linger from
the Midwest through the East for the next five days, but a
return to above-normal or some far-above-normal temperatures was
expected in the six to 10-day outlook.
    The latest National Weather Service six to 10-day forecast
issued on Thursday also called for above-normal readings for a
little more than the eastern half of the country, with
near-normal or below-normal temperatures in the West.
    Nuclear outages totaled just 6,200 megawatts, or 6 percent
of U.S. capacity, down from 6,800 MW out on Thursday and 10,400
MW out a year ago, but on par with a five-year average outage
rate of about 6,200 MW. 
    
    STORAGE DRAW FALLS SHORT OF EXPECTATIONS
    Thursday's gas storage report from the U.S. Energy
Information Administration showed domestic gas inventories fell
last week by 194 billion cubic feet, below industry expectations
for a 206 bcf draw. 
    Most traders viewed the decline as bearish, noting it was
below market expectations for the first time in five weeks.
    But others noted the draw was above both the year-ago drop
of 149 bcf and the five-year average draw of 178 bcf.
    Storage now stands 202 bcf, or about 7 percent, below last
year's levels, but 304 bcf, or more than 12 percent, above the
five year-average level.

    Early withdrawal estimates for next week's inventory report
range from 140 bcf to 173 bcf, well above the 94 bcf pulled from
storage during the same week in 2012, but in line with the
five-year average decline for that week of 165 bcf.    
    If drawdowns for the rest of winter match the five-year
average pace, inventories will end March at 2.032 tcf, about 18
percent above normal but 18 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 THREE WEEKS
    Traders were waiting for the next Baker Hughes gas
drilling rig report to be released later Friday. Data last week
showed the gas-directed rig count gained 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, with the rig count 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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