UPDATE 3-U.S. Jan natgas futures expire down, longs take profits

Fri Dec 27, 2013 3:29pm EST

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NEW YORK Dec 27 (Reuters) - U.S. natural gas futures ended lower on Friday as profit taking and long liquidation drove the front January contract down, but cold weather forecast for next week limited the downside.

"This might have been a little profit taking ahead of year end, and the back end of the 15-day forecast looked a little milder, but weather forecasts are still reasonably supportive," said Steve Mosley at The SMC Report in Arkansas.

Data released Friday by the U.S. Energy Information Administration showed that total gas inventories fell last week by 177 billion cubic feet to 3.071 trillion. The report was delayed one day this week because of the Christmas holiday.

Many traders viewed the drop as neutral for prices, noting it matched the Reuters poll estimate of 177 bcf. But some saw it as supportive, coming in well above last year's draw of 74 bcf and the five-year average decline for that week of 125 bcf.

Chilly early winter weather helped drive the front month up about 25 percent since Nov. 1, with the contract posting a 2-1/2 year high of $4.532 on Monday. But the front contract finished this week down 0.2 percent in its first weekly loss in eight weeks.

MDA Weather Services noted that computer models turned significantly colder for the Midwest and Northeast in the six- to 10-day outlook. But the forecaster did note some moderation in the 11- to 15-day time frame.

Front-month January gas futures on the New York Mercantile Exchange expired down 2.6 cents at $4.407 per million British thermal units after trading between $4.338 and $4.438.

The recent move up in prices broke some key technical resistance along the way and turned the chart picture bullish. But some traders said the market was overbought and due for a profit-taking pullback as investors square books for the year.

EIA data last week showed total gas inventories fell by a record 285 bcf, eclipsing the previous benchmark drop of 274 bcf set in January 2008.

Strong demand for heating this winter has burned up a lot of gas in inventory, with total storage withdrawals so far about double what would normally be expected. That has prompted analysts to scale back end-winter inventory estimates.

The weekly gas storage draw widened the deficit relative to last year by 103 bcf to 591 bcf, or 16 percent below the same year-ago week. It also added 52 bcf to the shortfall versus the five-year average, leaving stocks 313 bcf, or 9 percent, below that benchmark.

Early withdrawal estimates for next Friday's storage report range from 110 bcf to 150 bcf. That would compare with a 126 bcf drop during the same year-ago week and a five-year average decline of 121 bcf for that week.

That report will also be delayed by one day until Friday due to the New Year's holiday on Wednesday.

If drawdowns for the rest of the heating season match the five-year average pace, storage would end the winter just above 1.4 tcf. That would be the lowest end-winter inventory since 2008 and could help prop up prices next year as utilities scramble to rebuild stocks for next heating season.

In the ICE cash market, prices for weekend delivery at Henry Hub GT-HH-IDX, the benchmark supply point in Louisiana, slipped 8 cents to $4.32, but late differentials firmed to about flat with NYMEX from an 8-cent discount on Thursday.

Gas on the Transco pipeline at the New York citygate E-TSCO6NY-IDX lost 9 cents to $4.47 on the milder weekend outlook. Chicago MC-CHICIT-IDX was 7 cents higher at $4.76.

For daily ICE U.S. cash gas prices, click <0#GAS-IDX=ICE>. (Reporting by Joe Silha; Editing by Chris Reese, Jim Marshall and Bob Burgdorfer)

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