UPDATE 3-US natural gas futures end up for 2nd day, cold lifts prices

Tue Feb 5, 2013 3:58pm EST

* High inventories, record production limit price gains
    * Warm up late this week and next week keeps buyers cautious
    * Coming up: Reuters weekly natgas storage poll Wednesday


    By Joe Silha
    NEW YORK, Feb 5 (Reuters) - Front-month U.S. natural gas
futures ended higher on Tuesday for a second day, reacting to
fairly cold Northeast and Midwest forecasts for the next few
days that should drive up gas use to heat homes and businesses.
    "There's some cold weather coming in, but it's supposed to
moderate next week. I think prices could come off later in the
week if it still looks like it's going to warm up," a
Pennsylvania-based trader said.
    Some traders said time may be running out for price bulls,
with winter winding down and forecasts out two weeks showing
cold over the western half of the nation but above normal
temperatures for the key gas consuming eastern region.
    Front-month gas futures on the New York Mercantile
Exchange ended up 8.4 cents, or 2.5 percent, at $3.399 per
million British thermal units after trading in a range between
$3.318 and $3.407.
    The nearby contract, which hit a 6-1/2-week high of $3.645
two weeks ago, has gained 3 percent in the last two sessions
following a 4.2 percent slide last week.
    But while gas prices have tried to rally since last week's
low in the $3.20 area, traders noted that the move up has been
difficult, with inventories still relatively high, production
flowing at or near a record peak and no sustained cold to
seriously whittle down excess supplies.
    Commodity Weather Group on Tuesday said there were some
slightly warmer adjustments in its six-to-10-day forecast for
the Midwest, East, and South, while colder changes were made in
the 11-to-15-day outlook.
    The private forecaster still expects cold to dominate the
western half of the nation by mid month, but above normal
temperatures remain in the extended outlook for the Northeast.
    While chart traders agreed the technicals still look
bearish, with a possible bear flag forming during the last week,
some noted the front contract on Tuesday settled above minor
resistance at the 40-day moving average in the $3.37 area.
    
    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 inventory
withdrawal had fallen short of market expectations.
    While the draw trimmed 16 bcf from the surplus versus the
five-year average, 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 125 to 158 bcf. Stocks fell 94 bcf during the same week in
2012. The five-year average decline for that week is 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.

    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.
FILED UNDER: