* Light weekly stock draw pressures prices
* Mild weather, high supplies also weigh on sentiment
* Nuclear outages, rig count falls, producer cuts support
* Coming up: Baker Hughes rig data, CFTC trade data Friday
By Joe Silha
NEW YORK, March 1 (Reuters) - Front-month U.S. natural gas futures ended nearly 6 percent lower on Thursday after a government report showed a weekly inventory draw below market expectations.
The U.S. Energy Information Administration said domestic gas inventories fell last week by 82 billion cubic feet to 2.513 trillion cubic feet. Traders and analysts polled by Reuters had expected a 90-bcf decline.
“Another bearish inventory report hit the market today. With 19 days left to what may go down as one of the warmest U.S. winters in history, the surplus of natgas in inventory is continuing to grow,” Energy Management Institute’s Dominick Chirichella said in a report.
“I see nothing out there that is likely to result in anything other than natgas prices continuing to drift lower.”
The NYMEX front-month gas futures contract finished down 15.3 cents, or 5.8 percent, at $2.463 per million British thermal units after sliding to an intraday low of $2.444 after the EIA report.
The nearby futures contract has lost nearly 7 percent in five of the last six sessions.
The weekly stock draw fell short of the year-ago and five-year average declines for that week, increasing the surplus to last year by 3 bcf to 756 bcf, or 43 percent, and adding 36 bcf to the five-year average excess, raising the total to 780 bcf, or 45 percent.
(Storage graphic: link.reuters.com/mup44s )
Storage is at a record for this time and is likely to end winter at an all-time high, particularly with no extreme cold on the horizon.
That could push front-month futures, which have mostly been locked in a trading range between $2.40 and $2.70 since hitting a 10-year low of $2.231 in late January, to fresh lows.
While planned output cuts by several key producers and unexpected nuclear plant outages have lent some support to prices — front-month gas gained 4.5 percent last month — traders said the huge overhang in storage and tapering winter demand were likely to limit upside in the near term.
AccuWeather.com expects temperatures in the Northeast and Midwest, key gas-consuming regions, mostly to average above normal for the next 10 days, with daytime highs at times climbing to the mid- or high 50s Fahrenheit.
Early withdrawal estimates for next week’s EIA report range from 66 bcf to 95 bcf versus last year’s adjusted drop of 63 bcf and the five-year average decline for that week of 92 bcf.
While on an absolute basis, the stock draw was seen as bearish, traders noted recent inventory reports have hinted at a modest tightening in the supply-demand balance. But the slightly supportive data so far has failed to stir buying.
Late-season nuclear plant outages are still running about 6,600 megawatts above normal for this time of year, which could add more than 1 billion cubic feet to daily gas demand.
In addition, relatively cheap gas has drawn more industrial use and prompted more utility fuel switching away from coal.
But with production still running at or near all-time highs and inventories set to end the heating season at a record peak, few traders expect much upside in prices in the near term.
Last winter at this time, cold weather forced storage owners to pull nearly 2.1 tcf from inventory to help meet the surge in heating demand. This season, one of the mildest on record, only 1.34 tcf of storage gas has been burned, a 36 percent drop.
Most analysts expect stocks to end the heating season at 2.2 tcf, well above the previous record of 2.148 tcf set in 1983.
(Storage graphic: link.reuters.com/mup44s )
The inventory overhang could also spell trouble for prices late in the summer stock-building season if storage caverns fill to capacity and force 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.
Traders are waiting for the next Baker Hughes drilling rig report on Friday after last week’s data showed the gas count slid to its lowest since September 2009. It was the seventh straight weekly decline and stirred more talk that low prices were finally forcing drillers to slow dry gas operations.
EIA data on Wednesday showed that December gross natural gas production in the lower 48 U.S. states slipped slightly from a record high in November. It was the first decline in 10 months.
But the EIA said the largest drop, seen in Wyoming, was partly due to a compressor fire. Output in key shale plays such as Marcellus continued to grow.
(Rig graphic: r.reuters.com/dyb62s)
Analysts agree it can take months for a slowdown in drilling to translate into lower production, noting the producer shift in spending to higher-value oil and gas liquids plays still produces plenty of associated gas that partly offsets any reductions in pure dry gas operations.
A Bernstein Research report last week said the gas-directed rig count would have to drop to about 600 before it would be comfortable forecasting flat to falling production.
Most analysts, noting it will be difficult to balance the gas market without serious production cuts, do not expect any major slowdown in gas output until late this year. (Editing by Marguerita Choy)