UPDATE 3-Colder trend backs U.S. natural gas futures gains

Fri Feb 22, 2013 3:30pm EST

* Coal switching, nuclear plant outages lend some support
    * Cold trend expected to continue through mid March
    * High inventories, record production limit upside
    * Coming up: CFTC trade data Friday


    By Joe Silha
    NEW YORK, Feb 22 (Reuters) - Front-month U.S. natural gas
futures ended higher on Friday in seesaw trade, with prices
underpinned by forecasts for fairly cold weather in the eastern
half of the nation over the next two weeks, which should stir
more demand for heating.
     "I think prices were reacting to the winter storm in the
Midwest which should mean more demand, and it looks like below
normal temperatures are making their way south-eastward," said
Eric Bickel, analyst at Schneider Electric in Kentucky. 
    Traders also said gas prices at current levels should
continue to draw support from some utilities opting to shun more
expensive coal for power generation.
    Hefty nuclear plant outages this week, between 15,000 and
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. 
    Front-month March gas futures on the New York
Mercantile Exchange, which expire on Tuesday, ended up 4.5
cents, or 1.4 percent, at $3.291 per million British thermal
units after climbing late to an intraday high of $3.294.
    The front contract gained 4.4 percent this week following a
3.6 percent slide the previous 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. 
    Some traders noted growing concerns that the last month of
winter will not turn out cold enough to whittle down excess
supplies significantly, particularly with inventories still high
and production flowing 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 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.
    
    GAS DRILLING GAINS, OUTPUT FAILS TO SLOW 
    Baker Hughes data on Friday showed the gas-directed
drilling rig count rose this week for the first time in four
weeks, climbing by seven to 428. 
    The gas count is hovering not far above the 13-1/2 year low
of 413 hit in early November, but high production has shown no
significant signs of slowing.
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