* High inventories, record production weigh on prices
* Warm up expected next week also pressures futures
* Cold extended weather forecasts limit downside
* Coming up: Baker Hughes rig data, CFTC trade data Friday
By Joe Silha
NEW YORK, Feb 7 Front-month U.S. natural gas
futures ended lower on Thursday for the first time this week as
a bearish weekly inventory report weighed on the market, though
a colder outlook for the second half of the month helped limit
The U.S. Energy Information Administration report showed
total domestic gas inventories fell last week by 118 billion
cubic feet to 2.684 trillion cubic feet.
Most traders viewed the report as bearish, noting the draw
came in well below the Reuters poll estimate of 132 bcf and fell
short of market expectations for the second straight week.
But, despite the pullback, traders said prices were likely
to garner support late next week as another blast of cold air
moves into the Midwest and then spreads east, kicking up heating
demand over much of the nation.
"The (EIA storage) withdrawal was pretty bearish and we sold
off hard. There is warmer weather coming for a few days, then it
cools off again," said Steve Mosley at The SMC Report.
Front-month gas futures on the New York Mercantile
Exchange ended down 13.3 cents, or 3.9 percent, at $3.285 per
million British thermal units after sinking to an intraday low
of $3.282 late in the session. The nearby contract hit a 6-1/2
week high of $3.645 a little over two weeks ago.
Gas futures prices tried to rally this week after a 4.2
percent slide last week, but chart traders said Thursday's
selloff, which more than wiped out gains for the last three
days, turned the technicals neutral. Support was seen at last
week's low in the $3.20 area, with resistance at about $3.50.
Some traders said any move up was likely to prove difficult,
with inventories still high, production flowing at or near an
all-time peak and not enough sustained cold to whittle down
"The 6-10 day (forecast) continues to transition cooler. By
the 11-15 day, the American and European ensembles agree on
widespread, nearly coast-to-coast cold," private forecaster
Commodity Weather Group said in its morning report.
ANOTHER BELOW AVERAGE STORAGE DRAW
The weekly inventory draw widened the deficit relative to
last year by 24 bcf to 226 bcf, or 8 percent below last year's
record highs for that time.
But it added 47 bcf to the surplus versus the five-year
average, leaving storage still relatively high at 351 bcf, or 15
percent, above average for that time of year.
Early withdrawal estimates for next week's inventory report
range from 128 bcf to 180 bcf. Stocks fell an adjusted 113 bcf
during the same week last year, while the five-year average
decline for that week is 154 bcf.
If drawdowns for the rest of winter match the five-year
average pace, inventories will end March at 2.079 tcf, about 20
percent above normal but 16 percent below last year, when stocks
finished a very mild heating season at a record high 2.48 tcf.
PRODUCTION FAILS TO SLOW DESPITE RIG DECLINES
Baker Hughes will issue its next drilling rig report
on Friday. While the company's dry gas rig count is hovering
just above the 13-1/2 year low hit three months ago, production
has shown no significant signs of slowing.
The U.S. Energy Information Administration estimates that
marketed gas output in 2013 will rise slightly from 2012 levels,
which would mark the third straight yearly record.