February 13, 2013 / 3:01 PM / 5 years ago

UPDATE 3-U.S. natural gas futures end up as colder weather nears

* Coal switching, nuclear plant outages lend support
    * High inventories, record production limit price gains
    * Coming up: EIA, Enerdata natgas storage reports Thursday

    By Joe Silha
    NEW YORK, Feb 13 (Reuters) - U.S. natural gas futures ended
higher on Wednesday as bullish expectations for Thursday's
weekly inventory report and colder weather forecasts for the
next two weeks underpinned buying.
    Gas prices this year have mostly been stuck in a trading
range between $3.20 and $3.60, but recent tests of support have
held and may continue to do so if Northeast and Midwest
temperatures turn colder later this week and kick up demand for
gas to heat homes and businesses.
    "A lot of the buying had to do with the temperature outlook
which looks pretty cold, but the market is still range-bound,"
said Aaron Calder, analyst at Gelber & Associates in Houston.
    Front-month gas futures on the New York Mercantile
Exchange ended up 7.6 cents, or 2.4 percent, at $3.306 per
million British thermal units, after trading in a range between
$3.23 and $3.323.        
    Traders also noted that current gas prices were low enough
to prompt utilities to switch from coal to gas to generate
power, while hefty nuclear plant outages this week of more than
13,000 megawatts could boost gas demand further. 
    Gas-fired units are typically used to offset any shut
nuclear generation.
    After a fairly mild week this week, MDA Weather Services
sees temperatures in the West mostly averaging below normal for
the next two weeks, while the eastern half of the nation will
see mostly seasonal readings during that period.
    Despite the colder outlook, many traders remained skeptical
of any upside in prices with winter winding down, inventories
still high and production flowing at or near an all-time peak.  
    Traders and analyst polled by Reuters expect inventories to
have fallen by 162 billion cubic feet last week when the U.S.
Energy Information Administration releases its weekly storage
report on Thursday. 
    Stocks fell by an adjusted 113 bcf during the same week last
year, while the five-year average draw for that week is 154 bcf.
    EIA data last week showed total gas inventories of 2.684
trillion cubic feet had dropped 8 percent below last year's
record highs at that time, but were still relatively high at 351
bcf, or 15 percent, above the five-year average. 
    If withdrawals for the rest of winter match the five-year
average, stocks will end March at 2.079 tcf, about 20 percent
above normal but 16 percent below last year, when inventories
finished a very mild heating season at a record high 2.48 tcf.
    While the Baker Hughes gas-directed rig count has
fallen in four of the last five weeks and is hovering not far
above a 13-1/2 year low hit three months ago, production has
shown no significant signs of slowing. 
    In its short-term energy outlook on Tuesday, EIA said that
it expected marketed gas production to climb 1.1 percent this
year to 70.02 bcf per day, the third straight annual record. The
agency expects gas consumption in 2013 to gain 1.2 percent.
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