UPDATE 3-Front US natgas futures end up, mild outlook limits gain

Mon May 13, 2013 3:26pm EDT

* Front futures rebound after 3 straight weekly declines
    * Moderating weather seen slowing demand for next 2 weeks


    By Joe Silha
    NEW YORK, May 13 (Reuters) - Front-month U.S. natural gas
futures, backed by a chilly start to the week in the Northeast
that lifted demand, ended higher on Monday, but gains appeared
capped by the milder outlook for later this week and next that
should slow demand.
    Gas prices had lost ground in three previous weeks, sliding
more than 11 percent as moderating spring weather curbed heating
needs.
    The milder turn in temperatures followed a cold winter and
chilly spring that whittled down record high inventories and
drove gas prices up more than 40 percent from mid-February lows
during nine straight weeks of gains.
    Chart traders agreed the market was oversold and due for a
bounce, noting prices recently have tested technical support in
the $3.90 per mmBtu area but so far have not been able to settle
below that level.
    But with expectations that milder weather will lead to
above-average weekly inventory builds, few traders expect much
upside until hotter weather arrives and forces homeowners and
businesses to crank up air conditioners.
    "We're not seeing heat building in Texas and the Southeast
yet, which should mean larger storage injections, but it doesn't
look like they want to push prices much lower right now," said
Teri Viswanath, analyst at BNP Paribas in New York.
    Front-month gas futures on the New York Mercantile
Exchange ended up 1.5 cents at $3.925 per million British
thermal units after trading between $3.886 and $3.977.
    The front contract hit a 21-month high of $4.444 two weeks
ago, then posted a five-week low of $3.883 last week.
    Traders also noted signs that speculative investment funds
may be giving up on the recent bull run, at least temporarily.
Last week they trimmed their net long position in natural gas
futures, options and swaps for the first time in three months,
according to government data released on Friday.
    Commodity Weather Group said it expected the weather pattern
for the next two weeks to remain too quiet to generate any
large-scale demand concerns, except in Southern California,
where temperatures could again top 100 degrees Fahrenheit.
        
    ANOTHER BIG INVENTORY BUILD
    Data from the U.S. Energy Information Administration last
week showed that total domestic gas inventories rose by 88
billion cubic feet to 1.865 trillion cubic feet. 
    The weekly build was above the Reuters poll estimate of 83
bcf and well above the five-year average increase for that week
of 69 bcf, and initially pressured prices. 
    The gain, which was the fourth of the stock building season
and exceeded market expectations for the second straight week,
trimmed the deficit versus the five-year average by 19 bcf,
leaving stocks at 99 bcf, or 5 percent, below that benchmark.

    Early injection estimates for Thursday's EIA report range
from 88 bcf to 106 bcf versus a 56-bcf build during the same
week last year and a five-year average rise for that week of 83
bcf.
    
    PRODUCTION CLIMBS DESPITE FEWER RIGS
    Baker Hughes data on Friday showed the gas-directed
rig count fell last week by four to 350, its lowest since June
1995. 

    Despite the steep decline in dry gas drilling, production
has not slowed much, if at all, from 2012's record highs.
    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 last year. If realized, it would be the
third straight year of record production.
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