April 5, 2013 / 2:00 PM / 5 years ago

UPDATE 3-U.S. natural gas futures end up, front hits 20-month high

* Front-month futures score biggest one-day gain in 4 months
    * Milder U.S. weather next week expected to slow gas use
    * Nuclear plant outages slip back below normal

    By Joe Silha
    NEW YORK, April 5 (Reuters) - U.S. natural gas futures ended
up sharply on Friday, with the front-month contract driven to a
20-month high by bullish weekly storage data and stronger price
expectations this year after a chilly winter helped whittle down
record high inventories.
    Traders agreed Thursday's 94 billion cubic feet weekly
inventory draw was bullish, noting that it came in above the
Reuters poll estimate of 91 bcf and that stocks usually build
slightly that week. 
    Inventory draws have exceeded market expectations in six of
the last seven weeks. It was the first time since September 2011
that stocks dropped below the five-year average, a supportive
sign particularly with another draw expected next week.
    Cold late-winter weather and above-average nuclear plant
outages have helped put a huge dent in inventories and drive
futures prices up about 30 percent since mid-February.
    "I was expecting a pullback once the forecasts turned
warmer, but it might be over already. Storage is well below last
year, but we'll have to see how prices react next week once
warmer weather arrives," said Steve Mosley at The SMC Report.
    Traders said upward revisions by some prominent price
forecasters also backed some of the buying. Goldman Sachs on
Thursday raised its 2013 U.S. natural gas price forecast by 17
percent to $4.40 per mmBtu due to cold weather in March that
helped tighten the market.    
    Front-month gas futures on the New York Mercantile
Exchange ended up 17.8 cents, or 4.5 percent, at $4.125 per
million British thermal units after climbing late to $4.135, its
highest since August 2011. It was the biggest one-day gain for
the nearby contract in four months.
    Despite modest losses early in the week, the front contract
ended the week up 2.5 percent, the seventh straight weekly rise.
    Volume was heavy, with the official tally to be posted on
Monday likely to top the high so far this year of 758,506 hit on
March 14.
    But many traders still expect milder spring weather to soon
slow gas use and pressure prices, noting production was still
high and there were plenty of new longs in the market that may
rush to cash out quickly when more moderate weather moves in.
    In its 11-to-15-day outlook, forecaster MDA Weather Services
expects above- to much-above-normal temperatures to stretch from
Texas to the Northeast and parts of the Midwest.    

    U.S. Energy Information Administration data on Thursday
showed total domestic gas inventories fell last week to 1.687
trillion cubic feet, 779 bcf, or 32 percent below last year's
record highs at that time and 37 bcf, or 2 percent, below the
five-year average. 
    Early withdrawal estimates for next week's EIA report range
from 20 to 36 bcf versus an 11-bcf build during the same week
last year and a five-year average rise for that week of 15 bcf.
    Stocks peaked last year at a record high 3.929 tcf in early
November but will likely end the heating season about 33 percent
below last winter's record high finish of 2.48 tcf and 4 percent
below average for that time.
    Baker Hughes data on Friday showed the gas-directed
drilling rig count fell this week for the fifth time in six
weeks, dropping by 14 to a 14-year low of 375.

    Despite near steady rig declines over the last 18 months,
output has not slowed much from the record high hit last year.
    EIA data last week showed gross natural gas production in
January fell for the second straight month and dropped below
year-ago levels for the first time since February 2010.
    But it is still unclear if recent monthly output declines
were due to well freeze-offs from the cold or producers curbing
dry gas flows because prices were not that attractive.
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