UPDATE 3-US natural gas futures end down, 3rd drop in 4 sessions

Tue Feb 12, 2013 3:48pm EST

* High inventories, record production weigh on prices
    * Brief cold shot late this week limits downside
    * Coming up: Reuters weekly natgas storage poll Wednesday


    By Joe Silha
    NEW YORK, Feb 12 (Reuters) - Front-month U.S. natural gas
futures ended lower on Tuesday in a seesaw session, but colder
weather forecasts for later this week and next week limited the
downside.
    "The market is technically stalled, but we've been
oscillating near support and we may be setting up for another
leg down," a New England-based trader said.
    "It is going to get colder again, but winter is almost over
and momentum seems to be shifting to the downside." he added.
    Temperatures in the Northeast and Midwest did moderate this
week, but some traders said the colder late-week outlook could
lend some temporary support to prices and limit the downside.
    Prices are also low enough to prompt utilities to switch
from coal to cheaper gas to generate power, while hefty nuclear
plant outages this week of more than 13,000 megawatts could add
even more demand for gas. 
    Gas-fired units are typically used to offset any shut
nuclear generation.
    Front-month gas futures on the New York Mercantile
Exchange ended down 4.9 cents, or 1.5 percent, at $3.23 per
million British thermal units, after trading in a range between
$3.223 and $3.314. The front contract has closed lower in three
of the last four sessions, shedding some 5.5 percent.
    Technical traders on Monday noted the near month tested and
held the recent low in the $3.20 area, then closed higher,
raising the possibility of an upside reversal, but most agreed
Tuesday's failure to confirm that signal could turn the chart
bearish and help drive prices lower.
    Gas prices this year have mostly been stuck in a trading
range between $3.20 and $3.60.
    In its six-to-10-day outlook, Commodity Weather Group
expects below normal temperatures for the upper two thirds of
the nation, with seasonal readings expected across the South.
    Despite the colder outlook, many traders remained skeptical
of any upside in prices, with winter winding down, inventories
still high and production flowing at or near an all-time peak.
    
    AVERAGE STORAGE DRAW EXPECTED
    Withdrawal estimates for Thursday's Energy Information
Administration storage report range from 130 billion to 180
billion cubic feet, with most in the mid-150s. Stocks fell by an
adjusted 113 bcf during the same week last year, while the
five-year average draw for that week is 154 bcf.
    EIA data last week showed total domestic gas inventories for
the week ended Feb. 1 fell by 118 bcf to 2.684 trillion cubic
feet. Most traders viewed that report as bearish, noting the
draw came in well below the Reuters poll estimate of 132 bcf.
    
    While storage has fallen to about 8 percent below the record
highs seen last year at this time, traders noted that stocks
were still relatively high at 351 bcf, or 15 percent, above the
five-year average. 
    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.
           
    DRILLING DECLINES, PRODUCTION FAILS TO SLOW
    While the Baker Hughes gas-directed rig count has
fallen in four of the last five weeks and is hovering not far
above a 13-1/2-year low hit three months ago, production has
shown no significant signs of slowing. 
       
    In its short-term energy outlook on Tuesday, EIA said that
it expected marketed gas production to climb 1.1 percent this
year to 70.02 bcf per day, the third straight annual record. The
agency expects gas consumption in 2013 to gain 1.2 percent.
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