UPDATE 3-US natgas futures end up, front hits 20-mth high after EIAs

Thu Apr 11, 2013 3:21pm EDT

* Cold forecasts, particularly for Midwest, support prices
    * Front futures hit highest since August 2011 after EIA
report
    * Coming up: Baker Hughes rig data, CFTC trade data Friday


    By Joe Silha
    NEW YORK, April 11 (Reuters) - U.S. natural gas futures
ended higher on Thursday for a second straight day, with the
front-month contract posting a 20-month high even though a
government report showed a weekly inventory withdrawal below
expectations.
    A U.S. Energy Information Administration report showed total
domestic gas inventories fell last week by 14 billion cubic feet
to 1.673 trillion cubic feet. 
    While the draw came in below the Reuters poll estimate of 21
bcf, some viewed the report as supportive for prices, noting
stocks usually build slightly during that week. 
    "This week's ... (EIA) draw was in line with street
estimates but supportive relative to seasonal norms given that
we generally start seeing injections at this time of year," said
Mike Tran at CIBC Global World Markets in New York.
    Front-month gas futures on the New York Mercantile
Exchange ended up 5.4 cents, or 1.3 percent, at $4.139 per
million British thermal units after climbing to a new 20-month
high of $4.185 after the EIA report.
    Gas inventories began the heating season at record highs,
but cold late-winter weather and above-average nuclear plant
outages helped dent storage. Two weeks ago, stocks slid below
the five-year norm for the first time since September 2011.
    Front-month prices have gained in seven previous weeks and
is clinging to a modest gain so far this week, but with weather
bound to turn milder soon, concerns are growing that the market
may be ripe for a pullback.
    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 note 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 Commodity Weather Group sees cold persisting for
the Central United States for the next couple of weeks, but
readings in the South and East will mostly range from seasonal
to above seasonal levels during the period.

    INJECTION SEASON SET TO KICK OFF
    The weekly inventory withdrawal widened the deficit relative
to last year by 25 bcf to 804 bcf, or 32 percent below last
year's record highs at that time. It also increased the
shortfall versus the five-year average, leaving stocks at 66
bcf, or 4 percent, below that benchmark.
    But Thursday's decline should be the last of the heating
season, with estimates for next week's report all looking for a
modest build. 
    Early injection estimates for that report range from 16 to
55 bcf versus a 21-bcf build during the same week last year and
a five-year average rise for that week of 39 bcf.

    Total gas pulled from storage this winter is about 2.25 tcf,
roughly 770 bcf, or 52 percent more than last year and about 15
percent more than the normal heating season draw.
    
    WHEN WILL OUTPUT SLOW?
    Traders were waiting for the next Baker Hughes 
drilling rig report on Friday. The gas-directed drilling rig
count has fallen in five of the last six weeks, dropping last
week to a 14-year low of 375.

    The steep decline in dry gas rigs over the last 18 months
has raised expectations that production might finally slow from
2012's record high, but year-on-year comparisons so far have not
shown any clear signs that output has turned negative.
    In its short-term energy outlook on Tuesday, EIA trimmed its
estimate for domestic gas production growth in 2013 but still
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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