UPDATE 4-US natgas futures end down 4.3 pct, break chart support

Thu Feb 14, 2013 4:22pm EST

* High inventories, record production weigh on prices
    * Coal switching, nuclear plant outages lend some support
    * Coming Up: Baker Hughes rig data, CFTC trade data Friday


    By Joe Silha
    NEW YORK, Feb 14 (Reuters) - U.S. natural gas futures ended
down sharply on Thursday in active trade, as another weekly
inventory report below market expectations drove the front-month
contract below key technical support. 
    U.S. Energy Information Administration data showed total
domestic gas inventories fell last week by 157 billion cubic
feet to 2.527 trillion cubic feet. 
    Most traders viewed the decline as bearish for prices,
noting it was the third straight week that the draw fell short
of market expectations. A Reuters poll on Wednesday showed
traders and analysts had expected a 162-bcf drop.
    "With precious little time left to the current winter
heating season, the bulls got another disappointment as the EIA
weekly inventory report was bearish versus market consensus and
neutral at best versus the five year average," Energy Management
Institute's Dominick Chirichella said in a report.
    Traders noted preliminary estimates for futures-only volume
were pretty heavy at about 500,000 contracts. They said the
final exchange tally to be released on Friday could top the high
so far this year of 529,036 contracts hit on Feb. 7.
    Front-month gas futures on the New York Mercantile
Exchange ended down 14.3 cents, or 4.3 percent, at $3.163 per
million British thermal units after sinking late to an intraday
low and five-week low of $3.135.
    Just prior to release of the weekly storage report at 10:30 
a.m. (1530 GMT), the front month was trading at around $3.28.   
 
    Gas prices this year had mostly been stuck in a trading
range between $3.20 and $3.60, but chart traders noted that
Thursday's selloff drove the front contract below key support at
the double bottom in the $3.20 area. 
    Most agreed today's weak close could point prices lower, but
some said short covering on Friday ahead of a long holiday
weekend could provide a brief break in downside momentum.
    NYMEX floor trading will be closed Monday for the
Presidents' Day holiday.
    Some traders noted that current gas prices were low enough
to prompt more utilities to switch from coal to gas to generate
power, while hefty nuclear plant outages this week of more than
14,000 megawatts could boost gas demand further. 
    Gas-fired units are typically used to offset any shut
nuclear generation.
    After a fairly mild week this week, AccuWeather.com expects
temperatures in the Northeast and Midwest, key gas consuming
regions, to drop to below normal late this week and next week,
as highs mostly slip into the 30s Fahrenheit range.
    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.  
 
    
    STORAGE DRAW ABOVE LAST YEAR, FIVE-YEAR AVERAGE
    While the weekly withdrawal fell short of expectations, some
traders noted it came in well above the 113 bcf decline seen
during the same week last year and slightly above the five-year
average for that week of 154 bcf.
    The draw sharply widened the deficit relative to last year
by 44 bcf to 270 bcf, or 10 percent below last year's record
highs for that time. It trimmed 3 bcf from the surplus versus
the five-year average, but still left storage relatively high at
348 bcf, or 16 percent, above that benchmark.

    Early withdrawal estimates for next week's inventory report
range from 118 bcf to 154 bcf. That would be below the 155 bcf
pulled from storage during the same week in 2012 and possibly
below the five-year average decline for that week of 140 bcf.   
    If drawdowns for the rest of winter match the five-year
average pace, inventories will end March at 2.076 tcf, about 20
percent above normal but 16 percent below last year, when stocks
finished a very mild heating season at a record high 2.48 tcf. 

    DRILLING DECLINES, PRODUCTION FAILS TO SLOW
    Baker Hughes will issue its next drilling rig report
on Friday. The company's dry gas rig count has fallen in four of
the last five weeks and is hovering just above the 13-1/2 year
low hit three months ago, but record production has shown no
significant signs of slowing.

    EIA expects marketed gas production to hit a record high
70.02 bcf per day this year, the third straight annual record.
FILED UNDER:
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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