UPDATE 3-U.S. natgas futures end up as forecasts turn colder

Wed Apr 10, 2013 3:49pm EDT

* Colder turn in weather forecasts underpins gains
    * Nuclear plant outages remain below normal
    * Coming up: EIA, Enerdata natural gas storage reports
Thursday


    By Joe Silha
    NEW YORK, April 10 (Reuters) - U.S. natural gas futures
ended higher on Wednesday for the first time in three sessions,
underpinned by expectations of a supportive weekly inventory
report on Thursday and colder weather forecasts for next week,
particularly for the Midwest.
    Natural gas prices have mostly risen since mid-February,
spiking about 30 percent as cold weather and above-average
nuclear plant outages boosted demand and helped whittle down
inventories that began winter at record highs.
    Last week, inventories dropped below the five-year average
for the first time since September 2011, a supportive sign
particularly with another draw expected in this week's report.  
  
    While below normal Midwest temperatures for the next week or
two could force homeowners and businesses to turn up heaters,
milder weather across the South and East should limit the upside
in prices, which have gained for seven straight weeks but may be
ripe for a pullback when milder spring weather finally arrives.
    "There's still some upward momentum in the market after the
recent cold drew inventories down below average, and we're going
to see another draw tomorrow," said Tom Saal at INTL FCStone,
also noting that some cold in the forecast could stir up demand.
    Front-month gas futures on the New York Mercantile
Exchange ended up 6.8 cents, or 1.7 percent, at $4.085 per
million British thermal units after trading between $4.025 and
$4.161. The front contract hit a 20-month high of $4.18 Monday.
    Chart traders, noting that futures open interest has posted
a series of record highs over the last three weeks, said a flood
of new speculative length could leave the market vulnerable to a
sell-off when longs decide to take profits.
    Some traders also noted that gas prices are at or near
levels that could slow demand by making gas less competitive
with coal for power generation and increase supply by
encouraging producers to turn on more wells.
    Forecaster MDA Weather Services said the cold in the central
United States could persist for the next 15 days but expects
readings in the South and East to mostly range from seasonal to
above seasonal levels during the period.
    Separately, hurricane forecasters at Colorado State
University issued their outlook for the 2013 Atlantic hurricane
season on Wednesday, calling for an above-average season with 18
tropical storms and nine hurricanes. 
        
    ONE LAST STORAGE DRAW
    Traders and analysts polled by Reuters are looking for a 21
billion cubic feet withdrawal when the U.S. Energy Information
Administration releases its weekly storage report on Thursday. 
    Inventory draws have exceeded market expectations in six of
the last seven weeks, but Thursday's decline should be the last
of the heating season, with early estimates for next week's
report all looking for a modest build. 
    Stocks usually build slightly at this time of year. The
five-year average for Thursday's report is a 15 bcf injection. 

    U.S. Energy Information Administration data last week showed
total domestic gas inventories had dropped 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.
    
    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.
    In its short-term energy outlook on Tuesday, EIA trimmed its
estimate for domestic gas production growth in 2013 but still
said it expects output to rise 0.3 percent from 2012's record
levels. The agency expects consumption this year to rise 1
percent.
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