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