February 26, 2013 / 3:30 PM / in 5 years

UPDATE 3-Cold forecast underpins March natgas futures at expiry

* Coal switching, nuclear plant outages support prices
    * Cold trend expected to continue through most of March
    * High inventories, record production weigh on sentiment
    * Coming up: Reuters natural gas storage poll Wednesday

    By Joe Silha
    NEW YORK, Feb 26 (Reuters) - U.S. natural gas futures mostly
ended slightly lower on Tuesday, but cold weather expectations
for the eastern half of the nation for the next few weeks helped
the March contract expire with a modest gain.
    "We're getting a little bit of (cold) weather this week
which has helped push prices higher, but there's not much winter
left," a Chicago-based trader said.
    The front-month March contract rallied 5.6 percent in the
last three sessions, its biggest three-day run up in six weeks,
but traders said gas prices were still cheap enough to draw
support from some utilities switching away from more expensive
coal for power generation.
    In addition, they noted that hefty nuclear plant outages
this week, running between 15,000 and 16,000 megawatts, were
also boosting demand for gas. Gas-fired units are typically used
to offset shut nuclear generation. 
    Front-month March gas futures on the New York
Mercantile Exchange expired up 1.3 cents at $3.427 per million
British thermal units, after trading between $3.386 and $3.455.
    Most deferred contracts settled 1.5 to 2 cents lower.
    While technical traders agreed the chart picture looked more
bullish as prices climbed over the last week or so, most were
waiting to see what April, a spring month, would do when it
takes over front position on Wednesday.
    Commodity Weather Group still expects a cold-prevailing
pattern to continue through most of March. Traders said that 
should translate into decent, late winter heating demand.
    Even if March turns out cold, most traders see only limited
upside potential for prices, with gas inventories still high,
production flowing at or near an all-time peak and milder spring
weather only several weeks away.

    U.S. Energy Information Administration data last week showed
total domestic gas inventories of 2.400 trillion cubic feet were
9 percent below last year's record high at that time, but were
still relatively high at 361 billion cubic feet, or 18 percent,
above the five-year average. 
    Withdrawal estimates for Thursday's inventory report range
from 140 bcf to 171 bcf, with most estimates in the low-160s.
Stocks fell by an adjusted 106 bcf during the same week last
year. The five-year average decline for that week is 118 bcf.
    Most analysts expect storage to end the heating season at
just over 2 tcf, about 16 percent above average but 17 percent
below last winter's record high finish of 2.48 tcf.
    Baker Hughes data last week showed the gas-directed
drilling rig count rose for the first time in four weeks,
climbing by seven to 428.
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