* Gas inventories, production still at or near record highs
* Cold forecast for the next week should lift demand
* Millions on East Coast still without power after Sandy
(Adds analyst quote, rig data, production data, technicals,
By Joe Silha
NEW YORK, Nov 2 U.S. natural gas futures ended
lower on Friday as widespread power outages from Hurricane Sandy
slowed demand and weather forecasts for late next week turned
milder despite the outlook for some near-term cold that should
stir more heating load.
After some chilly weather for the next few days, private
forecaster MDA EarthSat on Friday noted its six- to 10-day and
11- to 15-day forecasts turned milder, with warmer air expected
to move into the Midwest first and then into the Northeast.
Many fundamental traders expect any move up in prices to be
difficult without sustained cold to boost demand, with storage
at record highs and production at or near a record peak.
"It looks like the weather is going to warm up a little late
next week. We already have record high storage, and we don't
have enough (cold) weather yet to see (inventory) withdrawals,"
said Steve Mosley at SMC Advisory Services in Arkansas.
Front-month gas futures on the New York Mercantile
Exchange ended down 14.5 cents, or near 4 percent, at $3.554 per
million British thermal units after trading between $3.535 and
The nearby contract, which hit a one-year high of $3.82 on
Tuesday, ended the week up 4.5 percent, primarily because
December rolled into the front position on Tuesday with a
33-cent premium to the expired November contract.
Technical traders said Friday's close below support at
$3.60, an area of previous resistance, could turn the chart
picture bearish, particularly if prices settle lower again on
Sandy knocked out power this week to nearly 8.5 million
customers and cut demand for gas used to generate electricity by
up to 1 billion cubic feet per day. But power outages on Friday
had dropped to about 3.5 million.
Traders said strong nuclear plant outages this week, several
due to Sandy, should have offset at least some of the lost load
from downed power lines, making next week's storage estimate
more difficult to peg. Plants burning gas typically come into
service, if needed, to replace missing nuclear generation.
Traders and analysts caution that if gas prices move much
higher, for example above $4, they could increase supply by
encouraging producers to hook up more wells and dampen demand by
making gas less competitive with coal for power generation.
GAS DRILLING CLIMBS, PRODUCTION STAYS STRONG
Baker Hughes data on Friday showed that the gas-directed rig
count rose this week by eight to 424 after posting a 13-year low
the previous week.
While the gas rig count has gained only 10 times this year,
four of those gains have occurred in the last seven weeks,
stirring concerns that the recent uptick in gas prices might be
encouraging producers to hook up more wells.
Still, drilling for natural gas has been in decline for most
of the last year, with gas rigs falling some 55 percent since
peaking at 936 in October 2011. The problem is that production,
so far, has not shown any significant signs of slowing.
(Rig graphic: r.reuters.com/dyb62s )
Gross natural gas production in August in the lower 48 U.S.
states slipped slightly from July, but at 72.55 billion cubic
feet per day, output is not far below the record high of 72.74
bcf per day hit in January, according to Energy Information
Administration data on Friday.
The associated gas produced from more-profitable shale oil
and shale gas liquids wells has kept gas flowing this year at or
near a record pace.
INVENTORIES HIT ALL-TIME PEAK
Data from the EIA on Thursday showed domestic gas
inventories rose last week by 65 billion cubic feet to 3.908
trillion cubic feet, easily eclipsing the previous record high
of 3.852 tcf hit last November.
The weekly build, which fell 2 bcf shy of the Reuters poll
estimate, trimmed the surplus relative to last year by 17 bcf to
136 bcf, or 4 percent above the same week in 2011. However, it
added 8 bcf to the excess versus the five-year average,
increasing that surplus to 259 bcf, or 7 percent.
(Storage graphic: link.reuters.com/mup44s )
Based on current weather forecasts, traders expect one or
two more weekly inventory builds to drive storage further into
record territory, peaking just shy of 3.95 tcf before winter
Early injection estimates for next week's EIA storage report
range from 15 bcf to 65 bcf. Last year during that week, stocks
rose 48 bcf, while the five-year average is 36 bcf.
While a huge inventory overhang, which peaked in late March
at nearly 900 bcf, has been cut by 85 percent, storage is 92
percent full and should provide a comfortable cushion to meet
any spikes in demand or unexpected disruptions in supply.
(Reporting by Joe Silha; Editing by Dale Hudson; and Peter