* Front month hovering above January's 10-year low
* Mild weather on tap for most of the nation
* US crude futures end down more than $1/barrel
* Coming Up: API oil data Tuesday, EIA oil data Wednesday
(Updates prices to settlement, changes quote, recasts)
By Eileen Houlihan
NEW YORK, March 12 U.S. natural gas
futures slid just over 2 percent on Monday, managing to remain
above a recent 10-year low despite weaker crude, mild
late-winter weather and swollen inventories.
"With less than two weeks to the start of spring and with
the weather conditions already spring-like in many parts of the
country, the probability that total natural gas in inventory
will end at an all-time record high level is increasing by the
week," said Energy Management Institute's Dominick Chirichella.
"With little to support any modest short covering rally and
with the inventory surplus still growing, we may in fact see
futures prices trading with a $1 handle earlier than I thought
we would... over the next week or even before we enter the
shoulder season," Chirichella added, a sentiment echoed by
Front-month April natural gas futures on the New York
Mercantile Exchange slid 5.5 cents, or more than 2
percent, to finish at $2.269 per million British thermal units.
The contract slid as low as $2.235, matching a contract low
and just above the January low of $2.231, the lowest price for a
front month since March 2002.
Other months ended down as well, with the May contract
sliding 5.2 cents, or also more than 2 percent, to
$2.373, and summer months losing about 5 cents each.
In the cash market, gas bound for the NYMEX delivery point
Henry Hub NG-W-HH in Louisiana slid 4 cents to $2.17, its
lowest mark since September 2009.
Early Hub cash deals were done at about a 12-cent discount
to the front month, easing from deals done late Friday at about
a 10-cent discount.
Gas on the Transco pipeline at the New York City gate
NG-NYCZ6 fell 7 cents to $2.29, also its lowest price since
September 2009, while Chicago gas gas NG-CHGC was 4 cents
lower on the day at $2.20.
Temperatures in both key gas-consuming cities were seen
climbing to the low to mid-70s Fahrenheit by midweek, according
to the Weather Channel's weather.com.
STORAGE A PROBLEM FOR PRICES
Last week's gas storage report from the U.S. Energy
Information Administration showed total domestic inventories
fell to 2.433 trillion cubic feet, still at record highs for
this time of year, and more than 700 bcf, or 40 percent, above
both last year and the five-year average level.
(Storage graphic: link.reuters.com/mup44s)
Early withdrawal estimates for this week's EIA report range
from 47 bcf to 66 bcf versus last year's drop of 60 bcf and the
five-year average decline of 79 bcf for that week.
With no extreme cold on the horizon, stocks are likely to
end winter at an all-time high of 2.2 tcf, well above the
previous record of 2.148 tcf set in 1983.
The cushion could also spell trouble for prices late in the
summer stock-building season if storage caverns fill to capacity
and force more supply into the market.
OUTAGES, CUTS COULD HELP TIGHTEN MARKET
Nuclear plant outages were running at about 19,600
megawatts, or 20 percent, on Monday, up from 14,500 MW out a
year ago and a five-year outage rate of about 14,700 MW.
Traders said the outages could add more than 1 bcf to daily
And planned output cuts by producers could trim 1 bcf per
day or more from flowing supply.
Relatively cheap gas has also drawn more industrial use and
prompted additional utility fuel switching away from more
But with production still running at or near all-time highs,
few traders expect much upside in prices in the near term.
The National Weather Service six to 10-day outlook issued on
Sunday called for above or much-above-normal readings for about
the eastern two-thirds of the nation and below-normal readings
only in the West.
Baker Hughes drilling data last week showed the gas-directed
rig count fell for a ninth straight week to a 32-month low of
The steady drop in gas-directed drilling has stirred talk
that low prices might finally slow output.
(Rig graphic: r.reuters.com/dyb62s)
Analysts agree it can take months for a slowdown in drilling
to translate into lower production, noting the producer shift in
spending to higher-value oil and gas liquids plays still
produces plenty of associated gas that partly offsets any
reductions in dry gas output.
A recent Bernstein report said the gas-directed rig count
would have to drop to about 600 before it would be comfortable
forecasting flat to falling production.
Most analysts, noting it will be difficult to balance the
gas market without serious production cuts, do not expect any
major slowdown in gas output until late this year.
(Reporting by Eileen Houlihan; editing by John Picinich)