UPDATE 3-U.S. natural gas futures end down, 1st loss in 4 sessions

Mon Apr 15, 2013 3:31pm EDT

* Front month hits new high, then slips on profit taking
    * Chilly weather seen continuing through April
    * Weekend nuclear plant outages climb back above average


    By Joe Silha
    NEW YORK, April 15 (Reuters) - U.S. natural gas futures,
shrugging off chilly forecasts for the next two weeks, ended
lower on Monday for the first time in four sessions on profit
taking after the front contract in overnight trade posted its
highest mark in more than 20 months.
    With prices at levels that make gas less competitive with
coal for power generation, some traders have been bracing for a
pullback, one that could pick up momentum as new speculative
longs, now at a record high, opt to take profits ahead of milder
temperatures next month that should slow demand.
    "The market pulled back a little, maybe with the overall
weakness in energy, but I don't see much of a break in the
(chilly) weather yet, and prices will probably bounce back
again," a New England-based broker said.
    Front-month gas futures on the New York Mercantile
Exchange ended down 8.5 cents, or 2 percent, at $4.137 per
million British thermal units after climbing overnight to $4.29,
their highest level since late July 2011.
    The front contract has gained ground in eight previous
weeks, climbing nearly 35 percent since mid-February as cold
late-winter weather and above-average nuclear plant outages
whittled down record high inventories at the start of the
heating season and tightened overall supplies.
    Traders said the sharp spike in the March-April
backwardation, which at 42 cents on Friday was nearly double
early April levels, reflected expectations that inventories
would be a lot tighter next heating season after cold
late-winter weather this year put a huge dent in stored
supplies.
    Some traders remain skeptical of the upside, noting domestic
output was still flowing at robust levels and prices were
reaching levels that could tempt producers to increase supply.
    MDA Weather Services noted that the six-to-10-day outlook
had turned colder, with much below normal temperatures expected
for the Midwest and South, while mid-Atlantic states will see 
below normal readings. The West will be warm during the period.
    
    INJECTION SEASON SET FOR SLOW START
    U.S. Energy Information Administration data last week showed
that total domestic gas inventories had fallen to 1.673 trillion
cubic feet, 32 percent below last year's record highs for that
time and 4 percent below average. 
    The 14 billion cubic feet weekly inventory draw in the
report should be the last of the heating season, but persistent
cold in April, particularly in the Midwest, has traders and
analysts expecting only modest builds this month. 
    Early injection estimates for Thursday's EIA report range
from 22 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.

    Winter withdrawals this year totaled about 2.25 tcf, roughly
770 bcf or 52 percent more than last year and 15 percent more
than the normal draw during the heating season.
        
    RIG COUNT CLIMBS, WHEN WILL OUTPUT SLOW?
    Baker Hughes data on Friday showed the gas-directed
rig count rose last week by two to 377, raising concerns that
higher gas prices may be stirring more dry gas drilling. 

    Drilling for natural gas has mostly been in decline for the
last 18 months. The count is down about 60 percent since peaking
in 2011 at 936 and is hovering just above the 14-year low posted
two weeks ago, but so far production has not slowed much from
the record high hit last year. 
    EIA recently trimmed its estimate for domestic gas
production growth in 2013 but still expects output to rise 0.3
percent from 2012's record levels.
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