UPDATE 3-US natural gas futures end down ahead of holiday weekend

Thu Mar 28, 2013 3:59pm EDT

* Front month hits highest mark since early September 2011
    * Forecasts for second week of April turn milder
    * Nuclear outages slip below last year, five-year levels


    By Joe Silha
    NEW YORK, March 28 (Reuters) - Front-month U.S. natural gas
futures, shrugging off a supportive weekly inventory report,
ended lower on Thursday, with the milder turn in the extended
weather outlook prompting some longs to liquidate ahead of a
three-day holiday weekend.
    The U.S. Energy Information Administration report showed
total domestic gas inventories fell last week by 95 billion
cubic feet to 1.781 trillion cubic feet. 
    Most traders viewed the decline as supportive for prices,
noting stocks usually build slightly that week and the draw came
in well above the Reuters poll estimate of 87 bcf.
    "The (EIA) number was higher than expected but not that
bullish. I think longs were looking at the weather models, which
showed a possible warm up in the 11-to-15-day forecast, and
decided to liquidate ahead of the long weekend," said Steve
Mosley at The SMC Report in Arkansas.
    NYMEX floor and electronic trading will be closed for the
Good Friday holiday.
    Front-month gas futures on the New York Mercantile
Exchange ended down 4.4 cents at $4.024 per million British
thermal units after climbing overnight to a fresh 19-month high
of $4.121.
    The front contract, which notched its sixth straight weekly
gain with a 2.5 percent rise this week, ended the first quarter
up about 20 percent. The contract finished the month of March
about 15 percent higher. 
    Cold late-season weather has put a huge dent in inventories
and helped drive futures prices up nearly 30 percent since
mid-February. Above-average nuclear outages have also increased
demand for gas-fired replacement power though downed units late
this week finally slipped below the five-year norm.
    Many traders remained skeptical of further upside, with
winter winding down and production still flowing at or near a
record peak.
    They noted that gas prices over $4 could curb demand by
prompting utilities to use coal rather than gas to generate
power and increase supply by encouraging producers to turn on
more wells.
    While MDA Weather Services still saw plenty of cold in its
six-to-10-day outlook, the forecaster expected temperatures to
turn milder during the 11-to-15-day time frame, with
above-normal readings stretching from Texas to Mid-Atlantic
states.

    STRONG STORAGE DRAW FAILS TO STIR PRICES
    Futures tried to rally after the weekly inventory report but
quickly stalled, then headed lower amid signs that winter might
finally be drawing to a close.
    The weekly inventory withdrawal sharply increased the
deficit relative to last year by 140 bcf to 642 bcf, or 26
percent below last year's record highs for that time. It also
sliced 101 bcf from the surplus versus the five-year average,
leaving stocks just 61 bcf, or 3.5 percent, over that benchmark.
    Most traders expect stocks to fall below the five-year norm 
in next week's EIA report, with early draw estimates ranging
from 45 to 97 bcf versus a 43-bcf build in the same week last
year and a five-year average increase for that week of 4 bcf.
    Stocks will likely end the heating season near the 1.73-tcf
average for March 31, or 30 percent below last winter's record
high finish of 2.48 tcf. A Reuters poll in mid-January put the
consensus end-winter inventory forecast at about 2 tcf.
    
    GAS DRILLING RIGS DIVE TO 14-YEAR LOW
    Baker Hughes data Thursday showed the gas-directed
rig count fell this week for the fourth time in five weeks,
dropping by 29 to 389, its lowest since May 1999.

    But despite the slowdown in dry gas drilling, production has
not slowed much, if at all, from the record high posted last
year.
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