* Front futures rebound after posting 2-1/2-month low Friday
* Cooler late-week outlook lifts prospects for demand
* Near record-high storage, production limit price gains
(Releads, adds analyst quote, updates with closing prices)
By Joe Silha
NEW YORK, Dec 17 U.S. natural gas futures ended
higher on Monday for the first time in eight sessions, backed by
technical buying and colder Northeast and Midwest weather
forecasts for later this week and next week that should stir
more heating demand.
The front-month contract, which hit a 13-month high of
$3.933 three weeks ago, broke a seven-session losing streak that
saw prices slide more than 10 percent, their biggest seven-day
drop in four months.
"We had a long losing streak, so we were bound to get some
short-covering. The forecast looks a little cooler than normal
which is supportive for heating demand, but this move up could
be temporary unless the cooler temperatures stick around," said
Jonathan Lee at Ecova Inc In Washington.
Most chart traders agreed the market was due for a technical
bounce after its recent stumble, noting the 14-day relative
strength index, an indicator of market momentum, slid into very
oversold territory in the mid 20s late last week.
Front-month gas futures on the New York Mercantile
Exchange ended up 4.4 cents, or 1.3 percent, at $3.358 per
million British thermal units, after trading between $3.277 and
$3.395. The nearby contract dipped to $3.261 on Friday, its
lowest since late September.
But even with some chilly weather ahead, few traders
expected much upside with no extreme cold on the horizon, noting
inventories were still at record highs for this time of year and
production was flowing at or near an all-time peak.
AccuWeather.com expects temperatures in the Northeast and
Midwest, key gas-consuming regions, to average above normal for
a few days, then cool to below normal later this week and next
week, as daytime highs drop into the 20s and 30s Fahrenheit.
But despite the cooler outlook, which should boost heating
needs, traders said demand during the Christmas and New Year
holiday weeks typically slows regardless of weather because many
schools and businesses are closed.
DRILLING DECLINES, OUTPUT STILL NEAR RECORD
Baker Hughes data on Friday showed the gas-directed
rig count fell by one last week to 416, leaving the count just
above the 13-1/2-year low of 413 posted five weeks ago.
(Rig graphic: r.reuters.com/dyb62s)
Drilling for natural gas has mostly been in decline for more
than a year, with gas rigs down 56 percent since peaking in 2011
at 936 in October. But so far production has not shown any
significant sign of slowing.
The U.S. Energy Information Administration last week said it
expected gas output in 2013 to rise to a record high of 69.59
billion cubic feet per day, the third straight annual record.
INVENTORIES HOVER NEAR RECORD HIGHS
EIA data last week also showed gas inventories for the week
ended Dec. 7 rose by 2 bcf to 3.806 trillion cubic feet.
The rare December injection was viewed as bearish, with most
traders expecting a slight decline. Gas inventories typically
fall by more than 100 bcf during the first week of December.
Inventories are still at a record high for this time of
year, hovering at about 1 percent above year-ago levels and 8
percent above the five-year average.
(Storage graphic: link.reuters.com/mup44s )
Storage hit a record high of 3.929 tcf in early November,
making this the fourth straight year in which inventories headed
into the heating season at an all-time peak.
The storage surplus is expected to widen further in this
Thursday's report, with early withdrawal estimates ranging from
57 bcf to 89 bcf. That would be well short of both the 100 bcf
pulled from inventory during the same week last year and the
five-year average decline for that week of 144 bcf.
(Reporting By Joe Silha; editing by Sofina Mirza-Reid and Jim