UPDATE 3-U.S. natgas futures end down for 3rd day, break support

Wed Apr 24, 2013 3:53pm EDT

* Front month off for 3rd day, just breaks trendline support
    * Moderating weather forecasts weigh on sentiment
    * Stock-building season off to a slow start
    * Coming Up: EIA, Enerdata natgas storage data Thursday


    By Joe Silha
    NEW YORK, April 24 (Reuters) - U.S. natural gas futures
ended lower on Wednesday for a third straight session, with the
front month closing slightly below trendline support as milder
weather forecasts and technical selling drove prices down from
recent highs.
    Cold late-winter weather, a chilly spring and above-average
nuclear plant outages put a huge dent in record gas inventories
and helped drive prices up 40 percent since mid-February.
    But despite lingering cold and prospects for light storage
builds for the next two weeks, some see the upside for gas
futures stalling after nine straight weeks of gains,
particularly with milder weather on the horizon.
    "The heating season seems to be concluding. There's not
enough cold in northern latitudes to drive much consumption and
support prices, so I think we could break down a little
further," said Richard Hastings, macro strategist at Global
Hunter Securities.
    Front-month gas futures on the New York Mercantile
Exchange, which expire on Friday, ended down 7.2 cents, or 1.7
percent, at $4.166 per million British thermal units after
trading between $4.162 and $4.276.
    The front contract is down 5.5 percent in the last three
sessions after hitting a 21-month high of $4.429 on Thursday.
    Chart watchers said Wednesday's front month close just below
the up trendline in the $4.18 area could be a bearish sign and
set up a test of better support in the $4.13 area, the 20-day
moving average and the 23.6 Fibonacci retracement of the move up
from the $3.125 February low to last week's peak.
    Matt Smith, commodity analyst at Schneider Electric, pegged
major support in the $3.93 area, which is the 38.2 Fibonacci
measurement and the front-month high from last year.
    Some said a close below that level could herald the end of
the bull market, at least until hotter weather kicks up air
conditioning demand.
    After the cold shot this week, MDA Weather Services expects
temperatures through the first week of May to range from
seasonal to above seasonal for most of the eastern half of the
nation, with below normal readings only in Gulf Coast states.
        
    ANOTHER LIGHT INVENTORY BUILD EXPECTED
    Traders and analysts polled by Reuters are looking for a 32
billion cubic feet build when the U.S. Energy Information
Administration releases its weekly inventory report on Thursday.
    Stocks rose 43-bcf during the same week last year, while the
five-year average build for that week is 50 bcf.    
    It would only be the second injection of the stock building
season, which started about three weeks later than usual this
year due to chilly spring weather.
    EIA data last week showed total domestic gas inventories had
climbed to 1.704 trillion cubic feet, 32 percent below last
year's record highs at that time and 4 percent below the
five-year average. 

    Chilly weather this month is expected to slow inventory
builds in at least the next two reports and drive stocks further
into deficit relative to the five-year average.
    
    OUTPUT NOT SLOWING MUCH YET
    Baker Hughes data on Friday showed the gas-directed
rig count rose slightly last week for the second straight week,
stirring expectations that higher gas prices may be tempting
producers to hook up more wells. 

    While the gas rig count is hovering just above a 14-year low
of 375 posted two weeks ago, production so far has not slowed
much, if at all, from the record high hit last year.
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