* EIA build falls below 5-year average, 1st time in 7 weeks
* Northeast, Midwest heat wave this week lends support
* Milder six- to 15-day outlook keeps buyers cautious
* Coming up: Baker Hughes rig data, CFTC trade data Friday
(Adds trader quote, technicals, updates with closing prices)
By Joe Silha
NEW YORK, July 18 U.S. natural gas futures ended
sharply higher on Thursday in active trade, backed by a heat
wave this week that kicked up power demand for air conditioning
and a government report showing a weekly gas inventory build
well below expectations.
The U.S. Energy Information Administration reported that
total domestic gas inventories rose last week by 58 billion
cubic feet to 2.745 trillion cubic feet.
Many traders and analysts viewed the build as supportive,
noting it came in well below the Reuters poll estimate of 64 bcf
and the five-year average increase for that week of 70 bcf.
"This might be a little overreaction to the (EIA) number,
but the market may finally be reacting to the heat. People may
be focusing on next week's injection which could be a lot lower
because it was so hot this week," a New England trader said.
It was the first time in seven weeks that the weekly
injection fell below average, and it could do so again next
week. Early injection estimates range from 45 bcf to 63 bcf
versus a 26 bcf build during the same week last year and a
five-year average increase for that week of 53 bcf.
Some traders said the relatively light build could signal a
slightly tighter supply-demand balance, noting the recent dip in
gas prices to the $3.50s may have attracted some utilities to
use gas rather than coal to generate power.
Front-month gas futures on the New York Mercantile
Exchange ended up 18.3 cents, or 5 percent, at $3.812 per
million British thermal units, the highest settlement for the
nearby contract in four weeks.
The nearby contract, which hit a 3-1/2 month low of $3.526
in late June, gained 2.2 percent over the previous two weeks. So
far this week, the contract is up 4.6 percent.
Some technical traders said Thursday's price action may have
turned the chart picture bullish, noting the front month closed
above its recent trading range between the $3.50s and $3.70s.
But many were waiting for another strong close on Friday to
confirm the push higher. Next resistance was seen at about $4.
Despite the run-up in prices, doubts remain about the rally,
with inventories comfortable, production still at or near a
record high, and heat expected to break by the weekend.
After record or near-record heat this week, particularly in
the Northeast, MDA Weather Services still expects temperatures
for most of the eastern half of the country to moderate to near
seasonal levels during the six- to 15-day time frame. Heat
should remain concentrated in the West.
The weekly storage injection trimmed 29 bcf from the deficit
relative to last year, leaving stocks at 414 bcf, or about 13
percent below last year's record highs at that time. But it
increased the shortfall versus the five-year average by 12 bcf
to 34 bcf, or about 1 percent below that benchmark.
Traders were waiting for the next Baker Hughes rig
report on Friday. The gas drilling rig count has climbed for
three straight weeks but is still hovering just above an 18-year
low hit late last month. The EIA still sees 2013 gas output
posting a record high for a third straight year.
(Additional reporting by Eileen Houlihan; Editing by Nick
Zieminski and Jim Marshall)