U.S. natgas futures edge higher as forecasts trend cooler

Fri Feb 22, 2013 9:37am EST

NEW YORK, Feb 22 (Reuters) - Front-month U.S. natural gas
futures edged higher early on Friday, backed by fairly cold
forecasts for the eastern half of the country for the next two
weeks that should force homeowners and businesses to crank up
their heaters.
    Traders also noted that gas prices at current levels
continued to draw support from some utilities opting to shun
more-expensive coal for power generation.
    Hefty nuclear plant outages this week of nearly 16,000
megawatts were also boosting gas demand as colder weather drove
up heating needs. Gas-fired units are typically used to offset
any shut nuclear generation. 
    At 9:20 a.m. EST (1420 GMT), front-month March gas futures
, which expire on Tuesday, were up 0.7 cent at $3.253 per
million British thermal units on the New York Mercantile
Exchange after trading between $3.231 and $3.27.
    The front contract is up about 3.2 percent so far this week.
    AccuWeather.com expects temperatures in the Northeast and
Midwest, key gas-consuming regions, mostly to range from normal
to below normal for the next 10 days, with overnight lows
dipping into the 20s and low-30s Fahrenheit during the period.
    Commodity Weather Group, a forecaster, said Thursday night's
European weeklies (models) suggest that the cold-prevailing
pattern will persist through about the middle of March before a
warmer transition occurs in the final third of the month. 
    But traders noted growing concerns that the last month of
winter will still not turn out cold enough to whittle down
excess supplies significantly, particularly with inventories
still high and production at or near an all-time peak.

    ANOTHER BELOW-AVERAGE STORAGE DRAW 
    U.S. Energy Information Administration data on Thursday
showed 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.
    
    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.
    If drawdowns for the rest of winter match the five-year
average, inventories will end March at 2.089 tcf, about 21
percent above normal but 16 percent below last year, when stocks
finished a very mild heating season at a record-high 2.48 tcf.
    
    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 sign of slowing.
    
    The EIA expects marketed gas production in 2013 to hit a
record high for the third straight year.
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