UPDATE 3-US natural gas futures end down despite supportive EIA data

Thu Feb 21, 2013 3:51pm EST

* Storage draw beats expectations but still below average

* Coal switching, nuclear plant outages lend some support

* Extended outlook for cold weather also limits downside

* High inventories, record production keep buyers cautious

* Coming up: Baker Hughes rig data, CFTC trade data Friday

By Joe Silha

NEW YORK, Feb 21 (Reuters) - U.S. natural gas futures ended lower on Thursday despite early buying after a slightly supportive weekly inventory report, as traders focused on concerns that the last month of winter may not turn out cold enough to significantly whittle down supplies.

U.S. Energy Information Administration data on Thursday showed total domestic gas inventories fell last week by 127 billion cubic feet to 2.400 trillion cubic feet.

While the weekly stock draw exceeded market expectations for the first time in four weeks and was viewed by some traders as slightly supportive, others noted it came in well below the 155 bcf decline seen during the same week last year and below the five-year average drop for that week of 140 bcf.

Stocks are still relatively high at 361 bcf, or 18 percent, above the five-year average, and with heating demand likely to slow in coming weeks and production still flowing at or near an all-time peak, some traders expect any upside to be difficult.

"Forecasted HDDs (heating degree days) over the next two weeks are expected to be slightly higher than historical norms, but it is likely too late in the season for much of a material impact on end of season storage balances," Mike Tran at CIBC World Markets said in a report.

Heating degree days measure the departure in the mean daily temperature from 65 degrees Fahrenheit (18 degrees Celsius) and are used to estimate demand to heat homes and businesses.

Front-month gas futures on the New York Mercantile Exchange ended down 3.3 cents at $3.246 per million British thermal units after climbing to an intraday high of $3.337 right after the EIA report.

While prices are struggling, traders said chilly forecasts for the Northeast and Midwest for the next week or two could boost heating demand enough to limit the downside.

They noted gas prices at current levels should draw support from some utilities opting to use cheaper gas rather than coal to generate power.

Hefty nuclear plant outages this week of about 15,000 megawatts could also boost gas demand as colder weather drives up space heating needs. Gas-fired units are typically used to offset any shut nuclear generation.

AccuWeather.com expects temperatures in the Northeast and Midwest, key gas-consuming regions, to range from normal to below normal for the next week, with overnight lows holding in the 20s and low-30s Fahrenheit.

BIGGER STOCK DRAW EXPECTED NEXT WEEK

Early withdrawal estimates for next week's inventory report range from 120 bcf to 173 bcf. That would be above the 106 bcf pulled from storage during the same week in 2012 and above the five-year average decline for that week of 118 bcf.

While stocks are not expected to end winter above last year's March 31 record of 2.48 tcf, some traders worry that mild weather next month could leave stocks near 2.1 tcf, or about 22 percent above normal, at the start of the injection season and reignite concerns about storage capacity limits.

PRODUCTION FAILS TO SLOW DESPITE RIG DECLINES

Baker Hughes will issue its next drilling rig report on Friday. While the company's dry gas rig count has fallen in five of the last six weeks and is hovering just above a 13-1/2 year low hit three months ago, record high production has shown no significant signs of slowing.

EIA expects marketed gas production in 2013 to hit a record high for the third straight year.

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