UPDATE 3-U.S. natural gas futures end up, EIA data supports

Thu Feb 28, 2013 3:46pm EST

* Weather outlook turns milder, limits upside
    * Aggregate inventories remain high, weigh on sentiment
    * Coming up: Baker Hughes rig data, CFTC trade data Friday


    By Joe Silha
    NEW YORK, Feb 28 (Reuters) - Front-month U.S. natural gas
futures ended higher on Thursday, underpinned by a government
report showing a weekly inventory withdrawal above market
expectations.
    The U.S. Energy Information Administration report showed
total domestic gas inventories fell last week by 171 billion
cubic feet to 2.229 trillion cubic feet. 
    Most traders viewed the decline as slightly supportive for
prices, noting it was the second straight week that the draw
came in above expectations. A Reuters poll on Wednesday showed
traders and analysts had forecast a 167 bcf drop.
    Front-month gas futures on the New York Mercantile
Exchange ended up 5.2 cents, or 1.5 percent, at $3.486 per
million British thermal units after climbing to an intraday high
of $3.508 after the EIA report.
    The near contract is up 5.9 percent so far this week
following a 4.4 percent increase last week. For the month of
February, the front month managed a 4.4 percent gain, the first
monthly increase since October when prices rose 11.2 percent.
    Cold forecasts helped drive the front contract higher over
the last two weeks, but the market also garnered support from
utilities switching from coal to cheaper gas to generate power
and from above-average nuclear plant outages that have prompted
more gas burn.
    Gas-fired units are typically used to offset any shut
nuclear generation.    
    The moderating trend in weather forecasts at midweek stirred
concerns that late-winter demand will slow and limit potential
upside in prices, particularly with inventories still high and
production flowing at or near a record peak.
    "We don't think there is much further running room to the
upside as a short bout of late season weather is unlikely to
materially impact end of season (storage) balances," Mike Tran
at CIBC World Markets said in a report.
    "Aggregate storage levels are some 16 percent above norms
and the weather outlook for the reporting week ahead looks much
more moderate and in line with seasonal averages," Tran added.
    MDA Weather Services, a private forecaster, noted that the
six-to-10-day and 11-to-15-day outlooks turned a bit warmer
overnight though another shot of cold air was expected to hit
the Midwest late in the period.
    
    ABOVE-AVERAGE STORAGE DRAW
    Traders said the weekly stock decline came in well above the
106 bcf pull seen during the same week last year and the
five-year average drop for that week of 118 bcf.    
    The draw sharply widened the deficit relative to last year
by 65 bcf to 307 bcf, or 12 percent below last year's record
highs for that time. It also sliced 53 bcf from the surplus
versus the five-year average, but storage is still relatively
high at 308 bcf, or 16 percent, above that benchmark.
    
    Early withdrawal estimates for next week's inventory report
range from 120 bcf to 160 bcf. Stocks fell an adjusted 92 bcf
during the same week in 2012, while the five-year average
decline for that week is 107 bcf.
    Most analysts expect storage to end the heating season at
about 2 tcf, or 16 percent above average but 19 percent below
last winter's record-high finish of 2.48 tcf. 
    
    OUTPUT STARTS TO SLOW?
    EIA data on Thursday showed that gross natural gas output in
December fell 1.1 percent from November's record high, the first
time in four months that production failed to notch a new peak.
    The Baker Hughes gas-directed rig count, hovering just above
a 13-1/2-year low of 413 hit in early November, has stirred
expectations that record gas output would finally slow. But it's
still unclear if the decline in December was due mostly to the
cold or producers finally curbing dry gas flows.
                   
                                                           
    The EIA estimates that marketed gas output in 2013 will hit
a record high for the third straight year.
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