UPDATE 3-U.S. natgas futures end down on milder long-term weather

Fri Feb 1, 2013 3:54pm EST

* Front contract slides 4.2 pct this week on mild weather
    * Near-term cold in Midwest and East limits downside


    By Joe Silha
    NEW YORK, Feb 1 (Reuters) - Front U.S. natural gas futures
ended lower on Friday in a seesaw session, pressured by a mild
outlook for later next week that should slow heating demand
despite strong gas use this week as cold weather settled into
the Northeast and Midwest.
    "People are going back and forth about the weather. The
market was up early on the cold in the Northeast, then sold off
because we get another mild period after that," Steve Mosley at
The SMC Report said.
    The nearby contract, which hit a 6-1/2-week high of $3.645
early last week, lost 4.2 percent this week. That followed a 3.4
percent slide last week as extended forecasts turned milder.
    Front-month gas futures on the New York Mercantile
Exchange ended down 3.8 cents, or 1.1 percent, at $3.301 per
million British thermal units after trading between $3.278 and
$3.387.
    Despite attempts to rally this week off Tuesday's low in the
$3.20 area, many traders remained skeptical of the upside, with
inventories relatively high, production at or near a record peak
and weather not cold enough to put a serious dent in supplies.
    Commodity Weather Group on Friday noted some colder shifts
across the Midwest and East for the weekend and early next week,
but the private forecaster said warmer trends in the
six-to-10-day outlook continue to progress and focus mostly over
the deep South and Midwest.    
    Technical traders noted the front contract this week has
been unable to rally above near resistance at the 40-day moving
average in the $3.39-3.40 area.
         
    STORAGE DRAW FALLS SHORT OF EXPECTATIONS
    Data from the U.S. Energy Information Administration on
Thursday showed that gas inventories fell last week by 194
billion cubic feet to 2.802 trillion cubic feet. 
    Most traders viewed the decline as slightly bearish, noting
it came in below the Reuters poll estimate of 206 bcf.
    The weekly draw widened the deficit relative to last year by
45 bcf to 202 bcf, or 7 percent below last year's record highs
for that time. 
    It also trimmed 16 bcf from the overhang versus the
five-year average, but traders noted that storage was still
relatively high at 304 bcf, or 12 percent, above that benchmark.

    Withdrawal estimates for next week's inventory report range
from 127 bcf to 173 bcf. That would be well above the 94 bcf
pulled from storage during the same week in 2012, but possibly
below the five-year average decline for that week of 165 bcf.   
    If drawdowns for the rest of winter match the five-year
average, inventories will end March at 2.032 tcf, about 18
percent above normal, but 18 percent below last year, when
stocks finished a mild heating season at a record-high 2.48 tcf.
   

    GAS RIG COUNT FALLS, OUTPUT STILL NEAR RECORD
    Baker Hughes data on Friday showed the gas-directed
drilling rig count fell this week for the third time in four
weeks, dropping by six to 428. 
    While the gas rig count is hovering not far above the 
13-1/2-year low of 413 hit about three months ago, production
has shown no significant sign of slowing.
    
    EIA data on Thursday showed that November gross natural gas
production in the lower 48 U.S. states rose to a record-high
73.88 bcf per day, the third straight monthly record. Output is
running about 1.42 bcf per day, or 2 percent, above the same
year-ago month. 
    The agency estimates that marketed gas output in 2013 will
hit a record high for the third straight year.
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