* Front month hits highest mark since October 2011
* Cold weather remains on tap for at least next two weeks
By Joe Silha
NEW YORK, March 18 U.S. natural gas futures
trimmed early gains but still ended slightly higher on Monday
after below normal late-winter temperatures and strong draws
from inventory this month drove the front contract to its
highest mark in nearly 17 months.
Cold late-winter weather has helped power the front contract
up nearly 25 percent in the last four weeks, turning the chart
picture more supportive as prices broke through some key
technical resistance along the way.
"The move up was inspired by the weather forecasts which
still look pretty cold, but there should be technical resistance
ahead of $4," said Steve Mosley at The SMC Report in Arkansas.
Chart watchers noted the recent move up has been accompanied
by steady gains in open interest, a bullish sign indicating that
new buying, not short covering has been fueling the upside.
Futures-only open interest on Friday hit a record high of
1,316,945 contracts, easily eclipsing the previous high of
1,308,114 from April 2012.
But some noted the contract was very overbought and due for
a pullback with the 14-day relative strength index climbing into
the mid-80s, its highest in years according to Reuters data.
While higher gas prices could slow utility demand - some
utilities have been burning gas rather than coal this winter to
generate power because it was cheaper - traders said a fairly
cold winter has put a huge dent in inventories and may set the
stage for higher price expectations this year.
But others worry that despite lingering cold this month,
winter is winding down and milder spring weather could slow
overall demand and force a pullback in prices.
Front gas futures on the New York Mercantile Exchange
ended up 1 cent at $3.882 per million British thermal units
after climbing early to $3.965, the highest since October 2011.
The nearby contract gained nearly 7 percent last week. It
was the fourth straight weekly gain and helped pull the 12-month
strip above $4 for the first time in nearly four months. The
strip settled Monday at $4.08, up about 0.2 cent.
The National Weather Service six-to-10-day and eight-to-14
day forecasts issued on Monday still showed below or much below
normal temperatures for most states east of the Rockies.
STRONG STORAGE DRAWS
U.S. Energy Information Administration data last week showed
domestic gas inventories for the week ended March 8 fell 145
billion cubic feet to 1.938 trillion cubic feet.
While the weekly draw came in well above the five-year
average drop for that week of 74 bcf and sliced 71 bcf from the
surplus versus the five-year average, storage is still
relatively high at 198 bcf, or 11 percent, above that benchmark.
Draw estimates for Thursday's storage report range from 62
bcf to 74 bcf. Stocks were unchanged during the same week in
2012, while the five-year average drop for that week is 26 bcf.
Withdrawals have beat expectations for four straight weeks
and prompted analysts to sharply lower estimates for end-winter
storage, with some expecting stocks to drop to 1.8 tcf, or 4
percent above average, before rebuilding begins again in April.
A Reuters poll in mid-January showed most analysts had
expected stocks to finish the heating season at about 2 tcf.
So far this winter, about 500 bcf, or 35 percent, more gas
has been pulled from storage than last year at this time.
RIGS CLIMB, OUTPUT NOT SLOWING MUCH
Baker Hughes data on Friday showed the gas-directed
drilling rig count jumped sharply last week, climbing 24 to 431.
The count posted a 14-year low the prior week,
While the EIA last week lowered its growth forecast for
2013, it still expects marketed gas production to hit a record
high for the third straight year.