January 15, 2013 / 2:51 PM / 5 years ago

UPDATE 3-Cold weather drives US natgas futures up for 4th day

* Front month up about 11 percent in last 4 sessions
    * Colder weather forecasts underpin gains
    * Record or near record production, inventories limit upside
    * Coming up: Reuters natgas storage poll on Wednesday

 (Changes byline, adds analyst quote, updates with closing
    By Joe Silha
    NEW YORK, Jan 15 (Reuters) - Front-month U.S. natural gas
futures ended higher on Tuesday for a fourth straight day, as
colder weather moved into the Northeast and Midwest and looked
set to stick around for the next 10 days. 
    While Northeast temperatures this week are still several
degrees above normal, they are cooler than the balmy weather
seen last week and should lift demand in a key consuming area.
    "We're in a weather play right now. It's supposed to get
pretty cold next week, and storage has finally dropped below the
record highs seen last year at this time," said Steve Mosley at
The SMC Report.
    Traders said last week's huge inventory draw has also helped
underpin recent price gains, noting it likely reflected a more
permanent, structural increase in demand as utilities continue
to use cheap gas rather than coal to generate power.
    Front-month gas futures on the New York Mercantile
Exchange ended up 8.2 cents, or 2.4 percent, at $3.455 per
million British thermal units after trading between $3.328 and
    The front contract is up 11 percent in the last four
sessions - its biggest four-day gain in 3-1/2 months - but most
traders see only limited upside from here, with inventories and
production still at or near record highs.    
    AccuWeather.com expects temperatures in the Northeast, a key
gas consuming region, to remain slightly above normal this week,
while the Midwest, another big gas user, will see mostly below
seasonal readings. Both regions should be hit by much colder
weather next week.
    Traders said gas prices could pick up support from nuclear
plant outages, which are running at about 9,200 megawatts this
week, or 1,700 MW above average for this time of year.
    Gas-fired plants are typically used to offset any lost
nuclear generation, and traders said the colder outlook for the
next 10 days should increase the need for replacement power.

    U.S. Energy Information Administration data on Thursday
showed domestic gas inventories for the week ended Jan. 4 fell
to 3.316 trillion cubic feet, 88 billion cubic feet below last
year's record highs for this time of year.
    But storage remains relatively high at 320 bcf, or about 11
percent above the five-year average. 
    (Storage graphic: link.reuters.com/mup44s )          
    Withdrawal estimates for Thursday's inventory report ranged
from 117 bcf to 145 bcf, with most in the low 130s. Stocks    
fell by an adjusted 89 bcf during the same week last year, while
the five-year average drop for that week is 144 bcf.
    Baker Hughes data on Friday showed the gas-directed rig
count fell by five last week to 434, the first drop in four
weeks. The count is not far above the 13-1/2-year low of 413
posted two months ago. 
    (Rig graphic: r.reuters.com/dyb62s)
    Drilling for natural gas has mostly been in decline for more
than a year, but so far production has shown no sign of slowing.
    EIA data last week showed gross U.S. gas production in
October climbed to 73.54 bcf per day, the second straight
monthly record. The agency also said it expected marketed gas
production in 2013 to rise nearly 1 percent to an average of
69.84 bcf daily, the third straight year of record output.    

 (Editing by Lisa Von Ahn, Sofina Mirza-Reid, Jim Marshall and
Tim Dobbyn)
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