U.S. natgas futures jump 3 pct early on colder forecasts

Tue Feb 19, 2013 9:29am EST

* Front month remains above recent 3-month low
    * Colder weather back in consuming regions this week, next
week
    * Nuclear outages running well above normal levels

    By Eileen Houlihan
    NEW YORK, Feb 19 (Reuters) - U.S. natural gas futures rose
more than 3 percent early on Tuesday, lifted by the return of
weekday industrial demand after the Presidents Day holiday
weekend and by forecasts for continued cold weather in consuming
regions of the nation.
    In addition, nuclear power plant outages remained well above
normal, boosting near-term demand.
    But some traders expect bloated inventories and the
impending end of winter to add weight to the downside.
    As of 9:20 a.m. EST (1420 GMT), front-month March natural
gas futures on the New York Mercantile Exchange were at
$3.248 per million British thermal units, up 9.5 cents, or just
over 3 percent.
    The front month contract tumbled nearly 4 percent last week
despite the colder weather outlooks. The contract hit a 6-1/2
week high of $3.645 in late January after touching a more than a
three-month low of $3.05 in early January. 
    Forecaster MDA Weather Services called for a "chilly,
unsettled pattern" with mainly below-normal readings over much
of the nation in its one to five-day outlook.
    In its six to 10-day forecast, as well as the latest
National Weather Service six to 10-day forecast issued on
Monday, both called for below-normal temperatures across the
West and mostly above-normal readings in the East.
    Nuclear outages totaled about 15,300 megawatts, or 15
percent of U.S. capacity, up from 14,100 MW out on Friday,
12,000 MW out a year ago and a five-year average outage rate of
about 9,800 MW. 
    
    ANOTHER BELOW-AVERAGE STORAGE DRAW 
    Last week's gas storage report from the U.S. Energy
Information Administration showed total domestic inventories
fell the prior week by 157 billion cubic feet to 2.527 trillion
cubic feet. 
    Most traders viewed the report as bearish, noting the draw
came in below Reuters poll estimates for a 162 bcf drop and was
under market expectations for a third straight week.

    While stocks are nearly 10 percent below last year's record
levels, they are 16 percent above the five-year average level
for this time of year.
    Early withdrawal estimates for this week's inventory report
range from 118 bcf to 154 bcf, 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 data on Friday showed the gas drilling
rig count fell for the fifth time in six weeks, dropping by four
to 421. 
    But while the gas rig count is hovering not far above the 
13-1/2 year low of 413 reported three months ago, production has
shown no significant sign of slowing.

    Producers have curbed dry gas drilling, but the associated
gas produced by more profitable liquids-rich wells has kept gas
flowing at or near a record pace.
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