UPDATE 3-Front U.S. natural gas futures end down for 2nd day

Fri Feb 8, 2013 3:35pm EST

* Warm-up expected next week keeps buyers cautious
    * High inventories, record production also weigh on prices


    By Joe Silha
    NEW YORK, Feb 8 (Reuters) - Front-month U.S. natural gas
futures ended slightly lower on Friday in seesaw trade, but a
powerful blizzard pounding the Northeast and the colder trend in
extended weather forecasts helped limit the downside.
    Despite Thursday's bearish weekly inventory report and the
milder outlook for several days next week, traders expected
heating demand to pick up when another shot of cold air moves
into the Midwest later next week and then spreads east.
    "The forecasts for the next couple of weeks look colder than
normal, but the big question is whether there's enough winter
left to work down the massive amount of gas in storage," said
Jonathan Lee at Ecova Inc. in Washington.
    Front-month gas futures on the New York Mercantile
Exchange ended down 1.3 cents at $3.272 per million British
thermal units after trading between $3.261 and $3.327.
    Futures prices tried to rally early this week, but
Thursday's near 4 percent slide on bearish inventory data wiped
out three days of gains and managed to turn what looked like a
positive technical picture more neutral. Chart watchers said
prices seem stuck in a trading range between $3.20 and $3.50.
    The front contract lost 0.9 percent this week following a
4.2 percent slide last week.
    Some traders said any move up was likely to prove difficult,
 with inventories still high, production flowing at or near an
all-time peak and not enough sustained cold to put a serious
dent in excess supplies.
    Commodity Weather Group said a massive snowstorm could
enhance cold weather in the Northeast this weekend and delay
warming trends early next week. The private forecaster also
noted a colder pattern shift in the six- to 10-day outlook.
    
    DRILLING DECLINES, PRODUCTION FAILS TO SLOW
    Baker Hughes data on Friday showed the gas-directed
drilling rig count fell this week for the fourth time in five
weeks, dropping by three to 425. 
    But 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.
    
    While the withdrawal widened the deficit relative to last
year to 226 bcf, or 8 percent, it left storage relatively high
at 351 bcf, or 15 percent, above the five-year average for that
time of year.
    Estimates for next week's inventory report range from 128
bcf to 180 bcf. Storage fell 113 bcf during the same week last
year. The five-year average decline for that week is 154 bcf.
    If withdrawals for the rest of winter match the five-year
average, stocks will end March at 2.079 tcf, about 20 percent
above normal but 16 percent below last year, when inventories
finished a very mild heating season at a record high 2.48 tcf.
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