UPDATE 3-Chilly outlook drives U.S. natgas futures up for 4th day

Fri Apr 19, 2013 3:33pm EDT

* Chilly weather seen continuing through April
    * Stock-building season off to a slow start
    * Nuclear plant outages above year ago and five-year average


    By Joe Silha
    NEW YORK, April 19 (Reuters) - U.S. natural gas futures
ended higher on Friday for the fourth straight session, backed
by chilly weather forecasts for the next 10 days that should
underpin heating demand despite early selling on profit taking
ahead of the weekend.
    Gas inventories started the heating season at record highs,
but cold late-winter weather, a chilly spring and above-average
nuclear plant outages have put a huge dent in inventories and
prompted higher price estimates for this year.  
 
    "People are looking at storage (in deficit), and the weather
forecasts look fairly supportive. The supply-demand balance is
not loose enough yet, so there's still opportunity for more
upside," said Steve Mosley at The SMC Report in Arkansas.
    Front-month gas futures on the New York Mercantile
Exchange ended up 0.7 cent at $4.408 per million British thermal
units after stalling at $4.42, just shy of Thursday's 21-month
high of $4.429. 
    The front contract, which gained 6.6 percent in the last
four sessions, ended the week up 4.4 percent, the ninth straight
weekly rise.
    Front-month prices have mostly been in an uptrend since
mid-February, gaining some 40 percent in the last nine weeks.
But with weather bound to turn milder soon and slow overall
demand, concerns are growing that the market may be ripe for a
pullback.
    The record growth in futures open interest that has
accompanied recent price gains means there are a lot of new
longs in the market who may rush to take profits as moderating
spring temperatures finally slow space heating needs.
    Traders also note that gas prices are at levels that could
dampen demand by prompting more utilities to switch back to coal
for power generation. High prices may also tempt producers to
turn on more wells, increasing supply.    
    Forecaster MDA Weather Services said cool weather should
continue in the Plains, Midwest and South for the next 10 days.
It said the East Coast was expected to shift to warmer weather
later this month and in early May.
    
    INJECTION SEASON OFF TO SLOW START
    A U.S. Energy Information Administration report on Thursday
showed total domestic gas inventories rose last week by 31
billion cubic feet to 1.704 trillion cubic feet. 
    Most traders viewed the build as supportive for prices,
noting it came in below the Reuters poll estimate of 34 bcf and
below the five-year average increase for that week of 39 bcf.
    The season's first injection, which came about three weeks
later than usual, widened the storage deficit relative to the
five-year average by 8 bcf, leaving stocks at 74 bcf, or 4
percent, below that benchmark.
    Chilly weather this month is expected to continue to slow
inventory builds and drive stocks further below the five-year
average for the next couple of weeks.
    Early injection estimates for next week's report range from
24 to 48 bcf, versus a 43-bcf build during the same week last
year and a five-year average rise for that week of 50 bcf.

    Injections during the April-through-October stock-building
season on average total about 2 tcf, meaning stocks could head
into next winter with about 3.7 tcf in the ground, well above
what would be needed to meet even the coldest winter demand, but
nearly 6 percent below last year's record peak of 3.929 tcf.
    
    WHEN WILL OUTPUT SLOW?
    Baker Hughes data on Friday showed the gas-directed
rig count rose this week by two to 379. Two straight weekly
gains have stirred expectations that higher gas prices may be
tempting producers to bring on more supply. The gas rig count
posted a 14-year low of 375 two weeks ago. 

    Drilling for natural gas has mostly been in decline for the
past 18 months. The count is down about 60 percent since peaking
in 2011 at 936, but so far production has not slowed much from
the record high hit last year.
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