February 15, 2012 / 2:20 PM / 8 years ago

US natural gas flat to lower early as storage weighs

* Front month still above recent 10-year low
    * Cool weather in consuming regions moderates
    * U.S. crude futures rise nearly $1/barrel early
    * Coming up: EIA oil data Wednesday, EIA gas data Thursday

    NEW YORK, Feb 15 (Reuters) - U.S. natural gas futures
traded flat to about 2 cents lower early on Wednesday, edging
off amid lingering concerns over a mild winter that has left
inventories bloated.	
    The market rose more than 4 percent on Tuesday, backed by
technical buying, a large number of nuclear plant outages and
recent production cuts that could start to help balance the
    Front-month March natural gas futures on the New York
Mercantile Exchange fetched $2.513 per million British
thermal units in early U.S. activity, down 1.9 cents.	
    The front month fell in late January to $2.231, a contract
low and the weakest price for a front month since March 2002,
forcing some producers such as Chesapeake Energy to
announce production cuts. 	
    Last week's U.S. Energy Information Administration storage
report showed gas inventories fell 2.888 trillion cubic feet,
widening the surplus to year-ago storage and the five-year
average to more than 700 billion cubic feet, or 33 percent.

    With production still running at all-time peaks and
inventories likely to end winter at a record high, most traders
remain cautious about any upside without much colder weather to
kick up late-winter heating demand.	
    The U.S. winter so far has been the second mildest since
1950, and scant heating demand has slowed inventory withdrawals
by nearly 400 bcf, or 30 percent below normal.	
    With no extreme cold on the horizon, more light inventory
draws are expected in coming weeks, which will only add to the
glut and possibly drive futures below their recent 10-year low.	
    Early withdrawal estimates for this week's EIA report range
from 104 bcf to 133 bcf, well below last year's drop of 230 bcf
and the five-year average decline for that week of 178 bcf.	
    Most analysts now expect inventories to end the winter at a
record high 2.215 tcf, 43 percent above the five-year norm, a
Reuters poll showed. 	
    The huge cushion could also spell trouble for prices late in
the summer stock-building season if inventory owners run out of
room to store gas, forcing more supply into the market.	
    Estimates for U.S. working gas storage capacity range from
4.1 tcf to 4.4 tcf, a level that could be tested if storage
builds from April through October match last year's 2.2 tcf.  	
    High temperatures were seen mostly in the 40s Fahrenheit in
New York and the high 30s to low 40s F in Chicago, both key
gas-consuming cities, according to the Weather Channel's
    The National Weather Service six- to 10-day outlook issued
on Wednesday called for below-normal readings for much of the
western half of the nation, and mostly normal or above-normal
readings in the East.	
    Baker Hughes data last week showed the gas-directed rig
count fell by 25 to a 28-month low of 720. It was the fifth
straight weekly decline and reinforced expectations that low
prices were finally forcing drillers to slow dry gas operations.

    The share of horizontal rigs drilling for dry gas has fallen
sharply over the last two years to just 47 percent of the total
due to much higher prices for oil and natural gas liquids
(NGLs). That is down from 80 percent two years ago, according to
Baker Hughes.	
    While the rig count is well below the 800 level some said
was needed to slow record output, analysts said the decline has
yet to be reflected in pipeline flows. They said the shift to
higher-value oil and gas liquids plays still produce plenty of
associated gas that ends up in the market after processing. 	
    Tighter environmental rules on emissions and relatively
cheap gas prices should prompt more demand from utilities and
industry, but analysts say it will be difficult to balance the
gas market without more serious production cuts.	
    PRICES: as of 9:07 a.m. EST in $/mmBtu 	
        LAST     NET    PCT      LOW    HIGH  CURRENT  DAY AGO
                CHNG   CHNG                       VOL      VOL
 NGc1    2.511  -0.021  -0.8%    2.501   2.567   20,209  195,210
 NGc2    2.664  -0.036  -1.3%   2.6530   2.725   11,951  106,952
 CLc1   101.82    1.08   1.1%   100.61  102.54   73,898  268,062
 CLc2   102.16    1.08   1.1%   100.96   102.9   41,938  112,799
 TECHS    LAST   MA-30   MA-90  Boll up  Boll dn  RSI-30 Imp Vol
 NGc1    2.511   2.620   3.180    2.710    2.320   44.24   47.52
 CLc1   101.82   99.71   96.71   101.67    96.44   57.47   28.81
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