* Milder U.S. weather next week expected to slow demand
* Nuclear outages still running above normal, lend support
* Big inventory draw expected Thursday also limits downside
* Coming Up: EIA, Enerdata natgas storage data Thursday
By Joe Silha
NEW YORK, April 3 Front-month U.S. natural gas
futures ended lower on Wednesday for a fourth straight day, as
milder weather forecasts for next week raised expectations that
heating demand was finally poised to slow.
Cold late-winter temperatures and above-average nuclear
plant outages helped drive futures prices up nearly 30 percent
since mid-February, with the front contract posting a 19-month
high $4.121 per million British thermal units just last week.
But despite chilly weather this week, traders expect milder
spring readings to soon slow demand and lightly pressure prices,
particularly with production still flowing at robust levels.
Gelber & Associates analyst Aaron Calder said in a report
that the recent rally "was based on much colder than expected
temperatures. Now that temps being forecasted are failing to
live up to that, prices are receding a bit."
But he added, "Drawing down storage before the start of the
injection season takes the fear (of) storage overflows out of
the market, and limits the downside potential of the contract."
Front-month gas futures on the New York Mercantile
Exchange ended down 6.9 cents, or 1.7 percent, at $3.90 per
mmBtu after trading between $3.897 and $3.985. The front
contract had posted gains in six previous weeks but has lost 4.1
percent in the last four sessions.
Recent price gains have been accompanied by a near steady
climb in open interest, indicating that new buying, not short
covering, has fueled much of the upside. Futures-only open
interest on Tuesday hit a record high for the 12th straight
session, climbing to 1,459,808 contracts.
But chart watchers said the market may be vulnerable to a
sell-off, noting today's close below near support in the $3.93
area could set off a stampede by new longs looking to cash out.
While the Plains and upper Midwest could remain cool next
week, MDA Weather Services expects above to much above normal
temperatures to stretch from the Gulf Coast to Northeast. Warmth
is expected to spread across the South and East by mid-April.
ANOTHER STRONG STORAGE DRAW EXPECTED
Some traders said expectations for another big storage draw
on Thursday may limit further downside temporarily.
Traders and analysts polled by Reuters are looking for a 91
billion cubic feet withdrawal when the U.S. Energy Information
Administration releases its weekly storage report on Thursday.
That would drive stocks below the five-year average for the
first time since September 2011.
U.S. Energy Information Administration data last week showed
total domestic gas inventories as of March 22 had dropped to
1.781 trillion cubic feet, just 61 bcf, or 3.5 percent, above
average for that week.
Record high inventories at the start of the heating season
have been steadily shrinking as cold late-season weather kicked
up demand. About 2.15 tcf of gas has been pulled from storage so
far this season, or 45 percent more than last year at this time.
Stocks usually build slightly at this time of year. The five
year average for Thursday's report is a 4 bcf injection. Two
more weekly draws will put storage well below normal at the
start of the April-through-October injection season.
OUTPUT STARTS TO SLOW?
EIA data on Friday showed that gross natural gas production
in January fell for the second straight month.
Output also dropped below year-ago levels for the first time
since February 2010, but it's still unclear if recent monthly
declines were due to well freeze-offs from the cold or producers
curbing dry gas flows because prices were not that attractive.
The gas-directed drilling rig count has fallen in four of
the last five weeks, slipping last week to a 14-year low of 389.
Despite the rig declines over the last year or so, output
has not slowed much from the record high hit last year.