March 19, 2013 / 2:10 PM / in 5 years

UPDATE 3-US natgas futures end up for 5th day, front hits 17-mth high

* Futures open interest hits second consecutive record high
    * Cold to continue into early April for Midwest, East
    * Coming up: Reuters natgas storage poll Wednesday

    By Joe Silha
    NEW YORK, March 19 (Reuters) - U.S. natural gas futures
ended higher on Tuesday for a fifth day, with below normal
temperatures this week and expectations for another supportive
weekly inventory report on Thursday driving the front contract
to a 17-month high.
    Cold late-winter weather has helped drive futures up more
than 25 percent in the last month, turning the chart picture
more supportive as front-month prices broke through some
technical resistance levels along the way.
    "We've had some nice storage draws and the weather forecast
still looks pretty cold, but this may be the last gasp before
spring comes. I think the market is running out of steam," a
Chicago-based trader said.
    Front-month gas futures on the New York Mercantile
Exchange ended up 8.7 cents, or 2.2 percent, at $3.969 per
million British thermal units after climbing late to $3.973, its
highest level since October 2011.
    The nearby contract has gained nearly 9 percent in the last
five sessions, the biggest five-day run up in two months. 
    The recent move up was also accompanied by steady gains in
futures open interest (OI), a bullish sign indicating that new
buying, not short covering has fueled much of the upside.
Futures-only OI hit a record high for a second straight day on
Monday, climbing 3,840 contracts to 1,320,785.
    But some chart watchers said the contract was overbought and
due for a pullback with winter winding down and the 14-day
relative strength index climbing into the high-80s this week,
its highest in years according to Reuters data.
    A cold winter has put a huge dent in inventories which could
lift price expectations this year, but many fundamental traders
see only limited upside from here with storage still comfortable
and production flowing at or near an all-time peak.
    High gas prices above $4 could slow demand by prompting
utilities to use more coal rather than gas to generate power and
increase supply by encouraging producers to hook up more wells.
    Private forecaster Commodity Weather Group said it expected
a generally cool or cold pattern to persist for the Midwest and
East into early April.

    Inventory withdrawals have beat expectations for four
straight weeks and prompted analysts to sharply lower estimates
for end-winter storage, with some expecting stocks to drop to
1.8 trillion cubic feet, or just 4 percent above average, before
rebuilding begins again in April.
    A Reuters poll in mid-January showed most analysts had
expected stocks to finish the heating season at about 2 tcf.

    Withdrawal estimates for Thursday's report range from 61 bcf
to 74 bcf. Stocks were unchanged during the same week in 2012,
while the five-year average drop for that week is 26 bcf.
    So far this winter, about 500 bcf, or 35 percent, more gas
has been pulled from storage than last year at this time, but
traders noted that stocks are still relatively high at 198
billion cubic feet, or 11 percent, above the five-year average.
    Baker Hughes data last week showed the gas-directed
drilling rig count jumped sharply, climbing 24 to 431. The count
posted a 14-year low the prior week. 

    While the EIA last week lowered its growth forecast for
2013, it still expects marketed gas production to hit a record
high for the third straight year.
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