UPDATE 3-Storm worry props up U.S. natgas futures ahead of weekend

Fri Oct 4, 2013 3:50pm EDT

Related Topics

* Tropical Storm Karen not expected to become hurricane

* Mild weather next two weeks expected to reduce demand

By Joe Silha

NEW YORK, Oct 4 (Reuters) - U.S. natural gas futures ended slightly higher on Friday, but trade was choppy as short-covering amid concerns about a storm in the Gulf of Mexico was partly offset by bearish weather forecasts and ample supplies.

Tropical Storm Karen, which was not expected to become a hurricane before reaching land somewhere between Louisiana and the Florida Panhandle over the weekend, has prompted producers to shut nearly 40 percent, or about 1.7 billion cubic feet per day, of offshore natural gas output, according to government data.

"We've got two factors in opposition. We had a big storage build yesterday that was bearish, but we also have a storm in the Gulf that's shutting in some production," said Steve Mosley at The SMC Report in Arkansas.

But most traders seemed to shrug off news of the cuts, noting volumes were relatively small and demand typically slowed during autumn as temperatures moderate. In addition, they noted that tropical storm winds were likely not strong enough to do serious damage to offshore pipelines and platforms.

Front-month gas futures on the New York Mercantile Exchange ended up 0.7 cent at $3.506 per million British thermal units, after trading in a narrow range between $3.482 and $3.535.

The front contract, which posted a five-week low of $3.402 last week and lost 2.7 percent as temperatures turned milder and reduced demand, finished the week down 2.3 percent. The combined drop of 4.9 percent since Sept. 20 was the biggest two-week loss in nearly two months.

Chart traders pegged technical support in the $3.50 area, noting the front contract has been unable to settle significantly below that level for the last week or longer.

But with inventories at comfortable levels and production flowing at or near a record pace, many traders remain skeptical of the upside for prices, at least until colder weather arrives.

MDA Weather Services expects temperatures over the eastern half of the United States to average above normal for the next two weeks, but traders doubt it will be warm enough to stir much cooling load.

Traders viewed Thursday's 101 billion cubic feet weekly inventory build as bearish, noting it matched the highest estimate in the Reuters storage poll. It also came in well above the 77 bcf build seen at the same time last year and the five-year average increase for that week of 82 bcf.

U.S. Energy Information Administration data showed total U.S. gas inventories last week at 3.487 trillion cubic feet, 4 percent below last year's record highs at that time but 1.4 percent above the five-year average.

Early estimates for next week's storage report range from 90 bcf to 103 bcf. Stocks gained 73 bcf a year earlier, while the five-year average increase for the week is 84 bcf.

Baker Hughes data on Friday showed the gas drilling rig count rose this week for the first time in three weeks, increasing by two to 378.

The count has risen in nine of the last 15 weeks, stirring talk that new pipelines and processing plants may be encouraging producers to pump more gas into an already well-supplied market.

The EIA still expects U.S. gas production to hit a record high in 2013 for the third straight year.

In the ICE cash market, gas for weekend delivery at Henry Hub , the benchmark supply point in Louisiana, eased 2 cents to $3.56, with late Hub differentials weakening to 2 cents over NYMEX from a 7-cent premium on Thursday.

Gas on Transco pipeline at the New York citygate slid 21 cents to $3.38 on the mild weekend outlook, while Chicago was 10 cents lower at $3.56.

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