UPDATE 3-U.S. natgas futures end down after front hits 20-mth high
* Front-month posts 20-month high early, then slips * Milder U.S. weather this week expected to slow gas use * Nuclear plant outages back below normal By Joe Silha NEW YORK, April 8 (Reuters) - U.S. natural gas futures ended lower on Monday for the first time in three sessions, pressured by profit-taking after the front contract climbed to a 20-month high in overnight trade. Gas prices have been on a tear since mid-February, spiking nearly 30 percent as cold late-winter weather and above-average nuclear plant outages increased demand for the fuel and helped whittle down record high inventories hit in November. Last week, storage dropped below the five-year average for the first time since September 2011, a supportive sign particularly with another draw expected this week. Traders said upward price revisions by some prominent industry forecasters such as Goldman Sachs have also backed some of the recent buying. But with seven straight weeks of gains and prices at levels that make gas less competitive against coal for power generation, some traders said the market may be ripe for a pullback. Front-month gas futures on the New York Mercantile Exchange ended down 4.3 cents, or 1 percent, at $4.082 per million British thermal units after climbing overnight to $4.18, the highest level since August 2011. "Traders are taking the opportunity to take some profits after Friday's rally," Gelber & Associates analyst Aaron Calder said in a report. On Friday, front-month futures rose 4.5 percent in their biggest one-day gain in four months. Volume at just over 792,000 contracts was the third highest ever, while futures-only open interest posted a record high for the 15th straight session. Chart traders said the strong growth in open interest over the last seven weeks, up more than 25 percent as prices moved higher, indicates that speculative traders have taken on a lot of new length, which could leave the market vulnerable to a sharp sell-off when longs decide to take profits. Some were concerned that milder spring weather could trigger that sell-off as demand slows and loosens the overall balance. Forecaster Commodity Weather Group noted that the East Coast outlook for this week turned warmer over the weekend, with temperature highs climbing into the 60s and 70s Fahrenheit. ONE MORE STORAGE DRAW EXPECTED Inventory draws have exceeded market expectations in six of the last seven weeks. U.S. Energy Information Administration data Thursday showed total domestic gas inventories fell last week to 1.687 trillion cubic feet, 32 percent below last year's record highs at that time and 2 percent below the five-year average. Early withdrawal estimates for Thursday's EIA report range from 5 to 46 bcf versus an 11-bcf build during the same week last year and a five-year average rise for that week of 15 bcf. That should be the season's last decline, with early estimates for next week's report all looking for a slight build. Stocks peaked last year in November at a record high 3.929 tcf but will end the heating season about 820 bcf below last winter's record high finish of 2.48 tcf and 4 percent below average for that time. WHEN WILL OUTPUT SLOW? Baker Hughes data on Friday showed the gas-directed drilling rig count fell last week for the fifth time in six weeks, dropping by 14 to a 14-year low of 375. Recent rig declines have raised expectations that output might finally be poised to slow from 2012's record high. Recent EIA data has shown that gross natural gas production in January fell for the second straight month and dropped below year-earlier levels for the first time since February 2010. However, it is still unclear if those monthly output declines were due to well freeze-offs from the cold or producers curbing dry gas flows in favor of more liquids-rich prospects.
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