U.S. natgas futures edge higher early on colder forecasts

Wed Feb 20, 2013 9:13am EST

* Front month remains well above recent three-month low
    * Cold weather back in consuming regions this week
    * Cold on tap for West next week
    * Nuclear outages running well above normal

    By Eileen Houlihan
    NEW YORK, Feb 20 (Reuters) - U.S. natural gas futures edged
higher early on Wednesday, rising for a second straight day amid
continued cold weather in consuming regions of the nation.
    In addition, forecasts for more cold in the West next week
and nuclear power plant outages that remain well above normal
were keeping momentum to the upside.
    But some traders expect bloated inventories and the
impending end of winter to add some weight to the downside.
    As of 9:06 a.m. EST (1406 GMT), front-month March natural
gas futures on the New York Mercantile Exchange were at
$3.30 per million British thermal units, up 2.8 cents, or less
than 1 percent.
    The front month contract rose nearly 4 percent on Tuesday,
recovering all of last week's losses.
    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 early in
the month. 
    Forecaster MDA Weather Services called for mostly
below-normal readings across the nation in its one to five-day
outlook.
    MDA's six to 10-day forecast, and the latest National
Weather Service six to 10-day forecast issued on Tuesday, called
for below-normal temperatures across the West and mostly normal
readings in the East.
    Nuclear outages totaled about 15,100 megawatts, or 15
percent of U.S. capacity, down slightly from 15,300 MW out on
Tuesday but up from 13,900 MW out a year ago and a five-year
average outage rate of about 10,100 MW. 
    
    ANOTHER BELOW-AVERAGE STORAGE DRAW 
    Last week's gas storage report from the U.S. Energy
Information Administration showed total domestic inventories
fell in 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 Thursday's weekly inventory
report so far range from 118 bcf to 126 bcf, below the 155 bcf
pulled from storage during the same week in 2012 and 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 last week 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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