UPDATE 3-U.S. natgas futures end down after June hits 21-mth high

Wed May 1, 2013 3:43pm EDT

* Late-week outlook turns colder for Texas and the Midwest
    * Cool weather drives front month to 21-month high
    * Coming Up: EIA, Enerdata natural gas storage data Thursday


    By Joe Silha
    NEW YORK, May 1 (Reuters) - U.S. natural gas futures ended
lower on Wednesday for a second straight day, pressured by a
late wave of profit-taking after colder weather forecasts drove
the front-month contract to a 21-month high early in the
session.
    Temperatures in the Midwest and Texas were expected to sink
far below normal later this week and generate heating demand. An
unexpectedly chilly spring has helped slow storage injections
early in the stock building season and left inventories well
below normal for this time of year. 
    "The market bumped up early as technical buyers responded to
temporary weather-based demand, but we saw some profit-taking
late in the session on concerns about the sustainability of the
(recent) rally," Gelber & Associates analyst Aaron Calder said.
    Calder noted that government data on Tuesday showed gross
gas production climbed in February, which could mean the market
will remain comfortably supplied, even during a warm summer.
    Front-month June gas futures on the New York
Mercantile Exchange ended down 1.7 cents at $4.326 per million
British thermal units after climbing early to a 21-month high of
$4.444.
    The front contract lost nearly 6 percent last week, its
first weekly decline in 10 weeks, but still managed a 7.9
percent gain in April for the third straight monthly rise.    
    Despite the early run up, technical traders said the market
seemed to be struggling, noting prices have broken above the
$4.40 level several times in the last two weeks only to be
turned back by strong selling or profit-taking.
    Some said Wednesday's action could signal a downside
reversal, noting the front month hit a new high then closed on a
weak note.
    Traders also noted that gas prices at current levels are
likely to slow demand by prompting more utilities to use coal
rather than gas for power generation and to increase supply by
encouraging producers to turn on more wells.    

    ANOTHER LIGHT INVENTORY BUILD EXPECTED 
    Utilities typically stockpile natural gas from April through
October, then withdraw stored supplies from November through
March to help meet peak winter heating demand.
    The stock-building season got off to a slow start, with only
two injections reported so far after an unusually cold spring
forced homeowners and businesses to use more gas for heating.

    Traders and analysts polled by Reuters are looking for
another light storage build when the U.S. Energy Information
Administration releases weekly inventory data on Thursday, with
most expecting a gain of 28 billion cubic feet. 
  
    Stocks rose 31 bcf during the same week last year, while the
five-year average build for that week is 67 bcf.        
    EIA data last week showed that total U.S. gas inventories
had climbed to 1.734 trillion cubic feet, about 807 bcf, or 32
percent, below last year's record highs at this time, and 94
bcf, or 5 percent, below the five-year average. 
    
    PRODUCTION CLIMBS DESPITE FEWER RIGS
    The EIA reported on Tuesday that gross natural gas
production in February climbed for the first time in three
months. Output rose to about 1.27 bcf per day, or 1.8 percent,
above the same month last year after dropping below year-ago
levels in January for the first time since 2010. 
    The report dimmed prospects that record high output would
slow anytime soon despite the fact that the Baker Hughes gas
drilling rig count has dropped to a 14-year low. 

    The EIA recently estimated that marketed gas output in 2013
will hit a record high for the third straight year.
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