UPDATE 3-Front U.S. natgas futures end up, 1st gain in 5 sessions
* Milder U.S. weather next week expected to slow demand * Nuclear plant outages slip back below normal * Coming up: Baker Hughes rig data, CFTC trade data Friday By Joe Silha NEW YORK, April 4 (Reuters) - Front U.S. natural gas futures, shrugging off milder weather forecasts for next week, ended higher on Thursday for the first time in five sessions, backed by a government report showing a larger-than-expected inventory withdrawal for last week. A U.S. Energy Information Administration report showed total domestic gas inventories fell last week by 94 billion cubic feet to 1.687 trillion cubic feet. Most traders viewed the decline as neutral or supportive for prices, noting stocks usually build slightly that week and that the draw came in above market expectations. Traders and analysts polled by Reuters had expected a 91-bcf draw. It was the first time since September 2011 that gas inventories dropped below the five-year average, a supportive sign particularly with another draw expected next week. Front-month gas futures on the New York Mercantile Exchange ended up 4.7 cents, or 1.2 percent, at $3.947 per million British thermal units. The contract hit an intraday high of $3.976 right after the EIA data at 10:30 a.m. EDT, then slid to the day's low of $3.861. "It was a slightly bullish (EIA) number, and next week we should see another withdrawal which should keep aggressive sellers on the sideline, but once we get some (milder) shoulder month weather, we should see lower prices," said Tom Saal, senior vice president at INTL FCStone in Miami. Cold late-winter temperatures and above-average nuclear plant outages have helped put a huge dent in inventories and drive futures prices up nearly 30 percent since mid-February. The front contract posted a 19-month high of $4.121 just last week. But despite chilly weather this week, many traders expect milder spring temperatures to soon slow demand and bring out the sellers, noting production was still flowing at robust levels and there was plenty of new length in the market. Recent price gains have been accompanied by a steady climb in futures open interest which hit record highs in 13 straight sessions, signaling that new longs, not shorts covering positions, were fueling much of the upside. But some chart traders worry that milder temperatures and slower demand could trigger a stampede by those longs looking to quickly take profits and cash out. While the Plains and part of the Midwest could remain cold next week, MDA Weather Services expects above- to much-above-normal temperatures to stretch from Texas to the Northeast in its 11- to-15-day outlook. ANOTHER STRONG STORAGE DRAW Futures tried to rally after the weekly inventory report but quickly stalled, then briefly headed lower amid prospects that winter heating demand might finally be poised to slow. The weekly inventory withdrawal sharply widened the deficit relative to last year by 137 bcf to 779 bcf, or 32 percent below last year's record highs at that time. It also wiped out the surplus versus the five-year average for the first time in more than 18 months, leaving storage at 37 bcf, or 2 percent, below that benchmark. Early draw estimates for next week's storage report range from 20 to 36 bcf versus an 11-bcf build during the same week last year and a five-year average rise for that week of 15 bcf. Stocks will likely end the heating season about 33 percent below last winter's record high finish of 2.48 tcf and 4 percent below average for that time. OUTPUT STARTS TO SLOW? Traders were waiting for the next Baker Hughes drilling rig report on Friday. The gas-directed drilling rig count has fallen in four of the last five weeks, slipping last week to a 14-year low of 389. Despite the rig declines over the last year or so, output has not slowed much from the record high pace hit last year. EIA data last week showed gross natural gas production in January fell for the second straight month and dropped below year-ago levels for the first time since February 2010. But it is still unclear if recent monthly output declines were due to well freeze-offs from the cold or producers curbing dry gas flows because prices were not that attractive.
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