* Storage draw beats expectations but still below average
* Coal switching, nuclear plant outages lend some support
* Extended outlook for cold weather also limits downside
* High inventories, record production keep buyers cautious
* Coming up: Baker Hughes rig data, CFTC trade data Friday
By Joe Silha
NEW YORK, Feb 21 U.S. natural gas futures ended
lower on Thursday despite early buying after a slightly
supportive weekly inventory report, as traders focused on
concerns that the last month of winter may not turn out cold
enough to significantly whittle down supplies.
U.S. Energy Information Administration data on Thursday
showed total domestic gas inventories fell last week by 127
billion cubic feet to 2.400 trillion cubic feet.
While the weekly stock draw exceeded market expectations for
the first time in four weeks and was viewed by some traders as
slightly supportive, others noted it came in well below the 155
bcf decline seen during the same week last year and below the
five-year average drop for that week of 140 bcf.
Stocks are still relatively high at 361 bcf, or 18 percent,
above the five-year average, and with heating demand likely to
slow in coming weeks and production still flowing at or near an
all-time peak, some traders expect any upside to be difficult.
"Forecasted HDDs (heating degree days) over the next two
weeks are expected to be slightly higher than historical norms,
but it is likely too late in the season for much of a material
impact on end of season storage balances," Mike Tran at CIBC
World Markets said in a report.
Heating degree days measure the departure in the mean daily
temperature from 65 degrees Fahrenheit (18 degrees Celsius) and
are used to estimate demand to heat homes and businesses.
Front-month gas futures on the New York Mercantile
Exchange ended down 3.3 cents at $3.246 per million British
thermal units after climbing to an intraday high of $3.337 right
after the EIA report.
While prices are struggling, traders said chilly forecasts
for the Northeast and Midwest for the next week or two could
boost heating demand enough to limit the downside.
They noted gas prices at current levels should draw support
from some utilities opting to use cheaper gas rather than coal
to generate power.
Hefty nuclear plant outages this week of about 15,000
megawatts could also boost gas demand as colder weather drives
up space heating needs. Gas-fired units are typically used to
offset any shut nuclear generation.
AccuWeather.com expects temperatures in the Northeast and
Midwest, key gas-consuming regions, to range from normal to
below normal for the next week, with overnight lows holding in
the 20s and low-30s Fahrenheit.
BIGGER STOCK DRAW EXPECTED NEXT WEEK
Early withdrawal estimates for next week's inventory report
range from 120 bcf to 173 bcf. That would be above the 106 bcf
pulled from storage during the same week in 2012 and above the
five-year average decline for that week of 118 bcf.
While stocks are not expected to end winter above last
year's March 31 record of 2.48 tcf, some traders worry that mild
weather next month could leave stocks near 2.1 tcf, or about 22
percent above normal, at the start of the injection season and
reignite concerns about storage capacity limits.
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 has fallen in
five of the last six weeks and is hovering just above a 13-1/2
year low hit three months ago, record high production has shown
no significant signs of slowing.
EIA expects marketed gas production in 2013 to hit a record
high for the third straight year.