UPDATE 3-U.S. natgas futures end down sharply on big storage build

Thu May 16, 2013 3:45pm EDT

* Futures tumble over 3 percent on bearish inventory report
    * Moderate weather not seen stirring much demand
    * Coming Up: Baker Hughes rig data, CFTC trade data Friday


    By Joe Silha
    NEW YORK, May 16 (Reuters) - Front-month U.S. natural gas
futures ended down sharply on Thursday after a government report
showed another weekly inventory build above market expectations.
    The U.S. Energy Information Administration said total
domestic gas inventories rose last week by 99 billion cubic feet
to 1.964 trillion cubic feet. 
    Most traders viewed the build as bearish, noting it came in
above the Reuters poll estimate of 95 bcf and well above the
five-year average increase for that week of 83 bcf. 
    "Today's EIA storage report came in on the bearish side of
street expectations for the third time in as many weeks. The
market was trending lower earlier in the session but took
another leg lower on the release," said Mike Tran at CIBC Global
World Markets in New York. 
    Front-month gas futures on the New York Mercantile
Exchange ended down 13.8 cents, or 3.4 percent, at $3.932 per
million British thermal units after sliding to an intraday low
of $3.912 after the EIA report.            
    Cool weather early this week helped drive gas prices up more
than 4 percent in the previous three sessions, but Thursday's
selloff left prices up only fractionally so far this week.
    Traders said selling today was concentrated up front, noting
    the June-January carry widened for the second straight day,
edging up 2.8 cents to 41.0 cents.
    Futures volume picked up sharply, topping the 250-day
average of 372,000. Total trade surpassed 400,000 lots for the
session, after averaging just 265,000 contracts per day in the
first three days of the week.
    Many traders remain skeptical of any upside in prices, at
least until hotter weather arrives and forces homeowners and
businesses to crank up air conditioners.
    AccuWeather.com expects temperatures in the Northeast and
Midwest to mostly average above normal for the next week, but
traders noted that high readings in the 70s Fahrenheit were not
likely to generate much heating or cooling load. 

    COMFORTABLE STORAGE, PRODUCTION
    This week's storage build was the fifth injection of the
stock building season. It exceeded market expectations for the
third straight week.

    The build narrowed the deficit relative to last year by 43
bcf to 694 bcf, or 26 percent below last year's record highs at
that time. It also trimmed the shortfall versus the five-year
average by 16 bcf, leaving stocks at 83 bcf, or 4 percent, below
that benchmark.
    Early injection estimates for next week's report range from
87 to 95 bcf versus a 75-bcf build during the same week last
year and a five-year average rise for that week of 90 bcf.    
    Traders were waiting for the next Baker Hughes 
drilling rig report on Friday after last week's data showed the
gas-directed rig count slid to an 18-year low. 

    Despite the steep decline in dry gas drilling over the last
year and a half, production has not slowed much, if at all. EIA
still expects output in 2013 to post a record high for a third
straight year.
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