UPDATE 3-U.S. natgas futures end down, front breaks chart support

Tue May 7, 2013 3:50pm EDT

* Front month hits five-week low, closes below support
    * Spring weather finally arrives in much of the country
    * EIA sees 2013 gas output up 1 pct from 2012 record high
    * Coming up: Reuters natural gas storage poll Wednesday


    By Joe Silha
    NEW YORK, May 7 (Reuters) - U.S. natural gas futures ended
lower on Tuesday for a second straight day, with moderating
weather forecasts and tapering demand driving the front-month
contract below technical support.
    After blowing through minor support at the 20-day and 40-day
moving averages over the last week, chart traders said Tuesday's
weak close broke support in the $3.94 per mmBtu area, the 38.2
percent Fibonacci retracement of the move up from the February
low of $3.125 to last week's high of $4.444.

    "I'm not ready to throw in the towel on the move up, but
this may be a sign that we're going to test further support
points," said Dean Rogers, technical analyst at Kase & Company.
    Rogers sees the market trading in a wide range for at least
the next few weeks, with $3.63 marked as the level that prices
must hold to avoid sinking into possible bear market territory.
    While the market is oversold and could bounce ahead of
Thursday's weekly inventory report, traders worry that record
high net long positions held by speculators could lead to a
sharp sell-off if new length rushes to cash out.
    Front-month gas futures on the New York Mercantile
Exchange ended down 9.1 cents, or 2.3 percent, at $3.92 per
million British thermal units after slipping to near a five-week
low of $3.916 at the floor trading close.
    The front contract, which hit a 21-month high of $4.444 on
Wednesday, lost 2.7 percent last week, its second straight
weekly decline after nine consecutive weeks of gains. It is down
another 3 percent so far this week.
    Expectations for a string of above-average weekly storage
builds as temperatures moderate have started to weigh on prices.
Last Thursday's unexpectedly-large inventory build triggered a
7-percent selloff, the biggest one-day drop in nine months.
    Traders said moderating weather forecasts have been making
previously bullish traders nervous following a cold winter and
chilly spring that whittled down record high storage and drove
prices up more than 40 percent from the mid-February lows.
    While there are still below-normal temperatures in the
forecast, particularly for Texas and the Southeast, traders
noted normal highs are on the rise as summer approaches and
below-normal readings in May are not likely to trigger much
heating or cooling load.    
    Some traders expect gas prices to remain under pressure, at
least until homeowners and businesses crank up air conditioners.
    
    The National Weather Service eight-to-14-day forecast on
Monday called for above-normal temperatures in the West and
Northeast, with below-normal readings in Texas and the
Southeast. Seasonal temperatures were expected elsewhere.
    
    ANOTHER BIG INVENTORY BUILD EXPECTED
    Last week's build was only the third injection of the stock
building season, but it did exceed market expectations and
prices fell sharply immediately after the report. 

    U.S. Energy Information Administration data last week showed
total domestic gas inventories had climbed to 1.777 trillion
cubic feet, about 118 billion cubic feet, or 6 percent, below
the five-year average.
    That deficit is likely to shrink in Thursday's report.
Injection estimates range from 58 to 92 bcf, with most in the
high-70s. Stocks rose 30-bcf during the same week last year,
while the five-year average increase for that week is 69 bcf.   

    PRODUCTION CLIMBS DESPITE FEWER RIGS
    Baker Hughes data Friday showed the gas-directed rig
count fell last week to an 18-year low of 353. 

    Drilling for natural gas has mostly been in decline for the
past 18 months, dropping some 62 percent since peaking in 2011
at 936, but so far production has not slowed much, if at all,
from the record high hit last year.
    The EIA on Tuesday raised its estimate for domestic natural
gas production in 2013, expecting output this year to be up
about 1 percent from 2012's levels. If realized, it would be the
third straight year of record production.
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