UPDATE 3-U.S. natgas futures end down 7 pct after bearish EIA report

Thu May 2, 2013 4:11pm EDT

* Futures tumble near 7 percent after bearish inventory
report
    * Extended weather outlook trends milder
    * Coming Up: Baker Hughes rig data, CFTC trade data Friday


    By Joe Silha
    NEW YORK, May 2 (Reuters) - U.S. natural gas futures ended
lower on Thursday for a third straight day, with a government
report showing an unexpectedly-large weekly inventory build
driving the front-month contract to its biggest one-day loss in
nine months.
    Data from the U.S. Energy Information Administration showed
total domestic gas inventories rose last week by 43 billion
cubic feet to 1.777 trillion cubic feet. 
    Most traders viewed the build as bearish, noting it came in
well above the Reuters poll estimate of 28 bcf. 
    But some noted it still fell well short of the 67-bcf
five-year average increase for that week and continued to widen
the deficit relative to that benchmark.
    "The first bearish storage report in several weeks sent the
market sharply lower as the EIA reported a 43 bcf injection that
took the market by surprise," said Mike Tran at CIBC Global
World Markets in New York.
    Front-month gas futures on the New York Mercantile
Exchange ended down 30.1 cents, or 7 percent, at $4.025 per
million British thermal units after sliding late to a three-week
low of $4.017.
    It was the biggest one-day decline for the front contract in
since early August 2012. The contract, which just hit a 21-month
high of $4.444 on Wednesday, lost 6 percent last week in its
first weekly decline in 10 weeks. It is down about 3 percent so
far this week.
    Cold late-winter weather, a chilly spring and above-average
nuclear plant outages put a huge dent in record-high gas
inventories at the start of the heating season and helped drive
up gas prices this year.
    But despite lingering cold and another attempt to move
higher this week, some said gas futures 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 technical selling
or profit-taking.
    "We're seeing more competition from coal which is slowing
demand, and higher prices may be attracting more supply," a
Massachusetts-based trader said.
    Despite a cold push this week in the Midwest that could
drive Texas temperatures to record lows, Commodity Weather Group
noted that the six- to 15-day outlook was trending warmer for
both the Midwest and South.
    
    LARGER-THAN-EXPECTED INVENTORY BUILD 
    This week's storage injection was only the third of the
stock building season, but the first to exceed market
expectations after an unusually cold spring extended heating
demand.
    The weekly build narrowed the deficit relative to last year
by 12 bcf to 795 bcf, or 31 percent below last year's record
highs at that time. But it increased the shortfall versus the
five-year average by 24 bcf, leaving stocks at 118 bcf, or 6
percent, below that benchmark.

    Early injection estimates for next week's report range from
43 to 84 bcf versus a 30-bcf build during the same week last
year and a five-year average rise for that week of 69 bcf.    

    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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