UPDATE 3-U.S. natgas futures end up, near-term cold bolsters prices

Mon Feb 4, 2013 3:25pm EST

* High inventories, record production limit price gains
    * Warming later this week also keeps buyers cautious


    By Joe Silha
    NEW YORK, Feb 4 (Reuters) - U.S. natural gas futures ended
slightly higher on Monday, backed by some technical buying after
an early attempt to move lower stalled and as cold
Northeast/Midwest weather forecasts for the next few days should
underpin demand.
    "The market is searching for strong directional guidance.
This time of the year that guidance will only come from actual
temperatures and/or the short-term weather forecast," Energy
Management Institute's Dominick Chirichella said in a report.
    "At the moment neither support a very strong move in either
direction," Chirichella added.
    Front-month gas futures on the New York Mercantile
Exchange ended up 1.4 cents at $3.315 per million British
thermal units after trading between $3.259 and $3.354.    
    Despite recent attempts to rally off last week's low in the
$3.20 area, many traders remain skeptical of the upside, with
inventories relatively high, production at or near a record peak
and no sustained cold to put a serious dent in supplies.
    Commodity Weather Group on Monday said computer models were
in better agreement for a warm-dominated six-to-10-day outlook
from the Midwest to East, but added that another cold shot was
possible for the central United States after that period.
    Chart traders agreed the technicals still tilted slightly
bearish, noting the front contract broke some key support over
the last two weeks and has been unable to rally above near
resistance at the 40-day moving average in the $3.39-3.40 area.
    The nearby contract hit a 6-1/2-week high of $3.645 two
weeks ago but ended January nearly unchanged after sliding 7.4
percent in the previous two weeks as forecasts trended milder.
        
    PRODUCTION FAILS TO SLOW DESPITE RIG DECLINES
    Baker Hughes data on Friday showed the gas-directed
drilling rig count fell last 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 three months ago, production has
shown no significant sign of slowing.
    
    The U.S. Energy Information Administration estimates that
marketed gas output in 2013 will hit a record high for the third
straight year.
    
    STORAGE DRAW FALLS SHORT 
    EIA data last week showed that gas inventories for the week
ended Jan. 25 fell by 194 billion cubic feet to 2.802 trillion
cubic feet. 
    Most traders viewed the decline as slightly bearish, noting
it was the first time in five weeks that the weekly withdrawal
had fallen short of market expectations.
    The 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 Thursday's inventory report range
from 126 bcf to 162 bcf. That would be well above the 94 bcf
pulled from storage during the same week in 2012, but likely
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.
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