UPDATE 3-U.S. natgas futures end slightly lower, cold limits selling

Fri Mar 22, 2013 3:40pm EDT

* Front month trades just below Thursday's 18-month high
    * Nuclear outages still running above normal
    * Cold to continue into early April


    By Joe Silha
    NEW YORK, March 22 (Reuters) - Front-month U.S. natural gas
futures ended slightly lower on Friday for a third straight day,
but cold weather this week and forecasts for more of the same
next week still allowed the spot contract to eke out a slim net
gain for the week.
    Cold late-winter weather has put a huge dent in inventories
and helped drive futures prices up about 25 percent in the last
five weeks. Above-average nuclear plant outages have also
increased demand for gas-fired replacement power and underpinned
recent price gains. 
    "It still looks pretty cold for the next two weeks, so
prices are probably going to stay near these levels until warmer
weather moves in," a Pennsylvania-based trader said.
    Front-month gas futures on the New York Mercantile
Exchange ended down 0.8 cent at $3.927 per million British
thermal units after trading between $3.913 and $4.006. The
nearby contract climbed to $4.025 on Thursday, its highest mark
since September 2011.
    The nearby contract, which posted an 18-month high of $4.025
on Thursday, gained 1.4 percent this week following a 6.7
percent rise last week.
    But despite recent gains, some traders see only limited
upside from here, noting production was still flowing at or near
an all-time peak and milder spring weather was likely to slow
demand later next month.
    In addition, gas prices above $4 could curb demand by
prompting some utilities to use more coal to generate power and
increase supply by encouraging producers to turn on more wells.
    Commodity Weather Group still expects cold to dominate for
the next 10 days, with some days predicted much below normal
temperatures for the Midwest and South. The forecaster expects
early April to remain cool for the Midwest, East and South.
    
    STORAGE DRAW FALLS BELOW EXPECTATIONS
    U.S. Energy Information Administration data on Thursday
showed total domestic gas inventories fell last week by 62
billion cubic feet to 1.876 trillion cubic feet. The draw
included a 4 bcf reclassification from base gas to working gas
in the Producing Region. 
    Most traders viewed the decline as bearish, noting it fell
short of market expectations for the first time in five weeks. 
The Reuters poll was looking for a 70 bcf draw.
    The drop did cut 36 bcf from the surplus versus the
five-year average, but storage is 162 bcf, or 9 percent, above
that benchmark.
    Most traders expect that surplus to shrink sharply in next
week's inventory report, with early withdrawal estimates ranging
from 59 to 94 bcf. Stocks rose 45 bcf during the same week last
year, while storage normally builds 6 bcf that week.
    Stocks will end the heating season below 1.8 tcf, or about 3
percent above average. A Reuters poll in mid-January showed most
analysts had expected stocks to finish winter at about 2 tcf.
    Total gas pulled from storage so far this winter is about
2.050 tcf, about 580 bcf, or 39 percent, more than the same time
last year and nearly 5 percent above normal.
    
    RIGS CLIMB, OUTPUT NOT SLOWING MUCH 
    Baker Hughes data on Friday showed the gas-directed
drilling rig count fell this week for the third time in four
weeks, dropping by 13 to 418.
    The count is hovering just above the 14-year low of 407
posted two weeks ago, but production has not slowed much, if at
all, from the record high posted last year.    

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